EU: Budget Reform

Lord Dykes: asked Her Majesty's Government:
	What further steps they propose to take in connection with the reform of the European Union budget.

Lord Triesman: My Lords, the agreement reached at the European Council in December 2005 on EU funding for the period 2007–13 asks the Commission to undertake a full, wide-ranging review covering all aspects of EU spending, including the CAP, and of resources including the UK rebate, to report in 2008–09. That review will then be given consideration by the Council. The UK fully supports the review and is committed to ensuring that it delivers real reform of the EU budget.

Lord Dykes: My Lords, I thank the Minister for that detailed Answer, but was it none the less not a colossal mistake by HMG to go on in recent years about being the fourth richest country in the world, and at the same time to insist on our unique and long-standing rebate being fully maintained unless there was a considerable reduction in agricultural support for the eight new central European members? How will the Government now repair the damage with those countries, as there is still smouldering resentment about what happened in those negotiations, which did not go very well all the way through the six-month period? What will now be done? What will the Government's attitude be to those countries? What other things can HMG offer on a bilateral basis?

Lord Triesman: My Lords, I regret so early in the new year to disagree so profoundly with the comment that has been made, but the fact was that there was a very tough negotiation, with 27 different countries, each with our own interests, and pursuing those interests with a great deal of vigour.
	We should look at what the Prime Ministers of those countries have said. The Hungarian Prime Minister said that it was an EU success, which he attributed to the United Kingdom. The Czech Prime Minister said that it was a worthwhile proposal that would bring big money to his republic. The Slovak Prime Minister said the result was better than he had hoped for. I could run through the lot, but I shall not.

Noble Lords: Oh!

Lord Triesman: I shall not, despite the encouragement. What I do say is that, for a group of aggrieved people, they seem in remarkably perky spirits.

Lord Hannay of Chiswick: My Lords, what steps will the Government take to ensure that when the review is conducted by the Commission, the Commission does not on this occasion smother the radical and interesting ideas that were put forward on the last occasion by Professor Sapir, which never got to the table of the Council at all? Does the noble Lord agree that it really is important to get a wide debate going, well ahead of 2008, about not only reforming the CAP, but finding ways through co-financing to reduce the burden that the CAP puts on the budget?

Lord Triesman: My Lords, I strongly agree that the earlier the debate gets going, the better it will be. Co-financing is one of the options that needs thorough discussion and must be examined as part of the review. If co-financing were to be introduced, it would have to be done in a way that ensured there was no increase in the total public spending in the EU—that is, of the EU plus the national budgets—and any move towards co-financing should also not stand in the way of further reform. That reform is plainly necessary, and all these ideas must be explored.

Lord Howell of Guildford: My Lords, continuing the spirit of new year agreement, would the Minister agree—as I think most people would—that the last six months of the British presidency was a sadly missed opportunity to get hold of serious reform of the budget? Under the new deal agreed before Christmas, which the Minister has already mentioned, the UK will pay the EU an average of £10.5 billion a year—that is even after the reduced rate—and then it will get back £4.5 billion a year in EU spending, so the average net contribution between now and 2013 will be an increase each year of £2.5 billion above what we were paying before. Is that right and, if so, what cuts in public services will we make to meet that sum?

Lord Triesman: My Lords, I anticipate no cuts in public spending at all. There has always been provision—the provision can be reflected in the fiscal statements made by the Chancellor—for the costs of enlargement. These were never going to be inexpensive. The UK's net contribution will increase by 63 per cent over the 2007–13 period, compared with 2000–06; that is the cost of enlargement. But all the wealthy countries are contributing. France's net contribution, for example, will go up by 124 per cent, Italy's will increase by 126 per cent. All of them see the benefits of a massively enlarged European Union and market.

Lord Marsh: My Lords—

Lord Barnett: My Lords, does my noble friend accept—

Lord Marsh: Happy new year.

Lord Barnett: Happy new year to you as well. Does my noble friend accept that it would be realistic to recognise that when there are 27 member states, the chance of getting an agreement on anything is pretty remote, particularly in relation to the budget? Is he prepared to say that our policy basically would also be realistic in recognising that we will need to compromise on almost any deal that is possible?

Lord Triesman: My Lords, that is the very nature of negotiations. As I said, negotiating with 27 players was always going to be a difficult matter. May I draw the House's attention to the fact that two of the four financial perspectives that have been agreed have been agreed under United Kingdom presidencies after very long negotiations with European partners, whatever the size of the European Union? We have benefited in that we have been prepared to open our markets and do the deals which go alongside enlargement without some of the fears that you see expressed elsewhere. It is hard to find a Paris newspaper that does not express deep alarm at the presence of a Polish plumber. We do not experience that difficulty in reaching agreements with our partners.

Lord Blackwell: My Lords, will the Minister confirm that until December the policy of the Government was to seek to redistribute structural funds from the richer countries to the poorer countries rather than to increase the budget and increase contributions? Is that still the case and is the Minister satisfied with the December outcome?

Lord Triesman: My Lords, we said very early on in the negotiations that we were looking for a 1 per cent budget. We ended up with a 1.04 per cent budget. That largely accounts for the additional money. That was considerably below the Luxembourg proposal and very much below the European Commissioners' proposal. What we are seeing is a fair balance at the end of a negotiation. Of course, it is not the same figure as at the beginning of a negotiation and, of course, the discussions were tough—that is the nature of negotiation. People strike positions, they argue about them and they get an outcome.

First World War: Pardons

Lord Dubs: asked Her Majesty's Government:
	Whether they will now consider granting a pardon to the troops serving in the British Armed Forces who were shot for alleged cowardice and desertion during the First World War.

Lord Drayson: My Lords, when he was Minister of State for the Armed Forces, Dr John Reid undertook a very careful and thorough review of the execution of soldiers during the First World War. He concluded that, regrettably, so long after the events, the evidence which survives on the individual cases does not provide a sufficient basis for the Secretary of State to recommend a pardon for most, and possibly all, of these men.

Lord Dubs: My Lords, I thank my noble friend for that Answer. Does he agree, first, that Secretaries of State can make mistakes? Secondly, does he agree that we are talking about some 306 men, of whom 26 were Irish, who were shot for offences for which they would not even have been punished in today's climate of opinion about medical psychiatry? Will he confirm that the New Zealand Government unilaterally gave their people a pardon? Will he also confirm that the Irish Government have made a plea to the British Government—so far unanswered—as to the fate of the 26 men for whom they want pardons? Is it not time for the Government to think again?

Lord Drayson: My Lords, my noble friend has asked a number of questions; if I may, I will pass on the question of whether Secretaries of State can make mistakes. My noble friend is correct that the New Zealand Government have passed an Act granting a pardon to servicemen from New Zealand. It is a question of whether there is a legal basis for such pardons. The department has looked incredibly thoroughly at this matter. The review that was undertaken in 1998, led by Dr John Reid, looked at this very carefully indeed, and no legal basis was found for such pardons.

Lord Maclennan of Rogart: My Lords, is not the basis of the Government's conclusions unacceptable, in that whatever the legal position may be there is a moral revulsion against what happened that pervades the whole country's view of those episodes? It is time to stop looking for evidence in particular cases and to recognise after the event that the people who are still most suffering from what happened are the families, and they will not understand this legalistic approach.

Lord Drayson: My Lords, I understand and appreciate the comments that the noble Lord has made, and I fully understand the concerns that people have on this matter. The soldiers were victims of a terrible war, and we express our deepest sympathy to their families and our deepest regret for their loss of life. However, a pardon is a legal matter, and no legal basis has been found for the granting of such a pardon. None the less, everything has been done short of the granting of a legal pardon to meet the concerns that naturally exist. Recognising that the men were victims, they have now been publicly recognised and their names have been added to the books of remembrance to be remembered as victims of that war.

Lord Glentoran: My Lords, will the noble Lord answer the question asked by the noble Lord, Lord Dubs, concerning the Irish 26 and the Irish Government's request?

Lord Drayson: My Lords, we are studying the report from the Irish Foreign Minister that seeks pardons for 26 Irish soldiers, and we are keeping the Irish Government informed, through the Foreign Office, of the progress that we have made with the reply. We will discuss the contents of the response with the Irish Government before we issue any formal public statement, and we are looking for a constructive way forward.

Lord Filkin: My Lords, my noble friend's response seems to be that we would do it if we could find a way to do it. If the New Zealanders have found a way to do it, why cannot we do so?

Lord Drayson: My Lords, my noble friend raises the point relating to New Zealand. A new Act was passed by the New Zealand Government. In our case, the House will recognise that we have looked thoroughly for a legal solution to this matter, and we have not found such a legal solution to provide a pardon.

Lord Campbell of Alloway: My Lords—

Baroness Gardner of Parkes: My Lords, were the New Zealanders part of the 300-odd figure that he mentioned, or were they not classified as British Armed Forces? What was the position of those from other Commonwealth countries such as Canada and Australia?

Lord Drayson: My Lords, the New Zealand soldiers were among the 306 whom I mentioned. Other countries, such as Canada, have not issued pardons to their servicemen.

Lord Tordoff: My Lords, is this not an occasion on which perhaps the Prime Minister should use his well vaunted Royal prerogative to grant pardon to these people?

Lord Drayson: My Lords, the Prime Minister does not have a Royal prerogative in the way in which the noble Lord suggests.

Baroness Trumpington: My Lords, is not the Minister playing with words when he says that the issue is a legal matter? Surely other words have been changed from a legal point of view without so much as a cry in the wind or any fuss. As I said, I think that he is playing with words.

Lord Drayson: My Lords, I assure the House that I am not playing with words. I express to the House my sincerest concern about the matter, but the granting of legal pardons must be based on legal process and must be done in a way that does not in itself create a new legal injustice. In many cases, the evidence relating to the courts martial no longer exists due to damage that was done during the Second World War. We do not have the information to enable us to find a legal basis on which to grant legal pardons.

Lord Campbell of Alloway: My Lords—

Baroness Symons of Vernham Dean: My Lords—

Lord Laming: My Lords—

Lord Rooker: My Lords, it is the turn of the Cross-Benchers.

Lord Laming: My Lords, does the Minister accept that the general feeling of the House is that the Government might now seek a humanitarian response to the problem and find a legal basis on which to proceed? The First World War was awful and none of us can envisage exactly what the men suffered.

Lord Drayson: My Lords, I will certainly express the sentiments of the whole House, which have been reflected this afternoon, to the department and to the Secretary of State, who I know is looking at the matter.

Old Palace Yard

Lord Berkeley: asked Her Majesty's Government:
	What progress has been made in prohibiting through vehicular traffic across Old Palace Yard to improve the security of the Parliamentary Estate and road safety.

Baroness Amos: My Lords, the installation of Corus steel barriers around the Clock Tower and through Old Palace Yard has already increased the security of the Parliamentary Estate. Ongoing studies are assessing the potential effects of various traffic and environmental enhancement schemes in the area. We are working in partnership with outside agencies and affected parties to ensure that security is fully taken into account in decisions affecting the area around the Parliamentary Estate, including Old Palace Yard.

Lord Berkeley: My Lords, I am grateful to my noble friend for that full Answer. I accept that the new steel barriers improve security around the Parliamentary Estate, but does she agree that they have increased danger for road users, in particular cyclists, and reduced space for pedestrians? Is there not an argument for banning road vehicle through traffic completely from Old Palace Yard and for implementing the second phase of the world squares project, which has been so successful in Trafalgar Square?

Baroness Amos: My Lords, I know that there has been a great deal of concern over the implications of the work that has been done outside Parliament. I have checked specifically not only with the House authorities but with others about risk to cyclists and, particularly, pedestrians. I can report that Westminster City Council conducted a full safety audit after the construction of the barriers and a number of its recommendations have been put in place, including extra signage, special lines on the lanes and additional markings on the barriers. We will continue to keep the matter under review. I ask Members to report any problems that they experience to the House authorities.
	My noble friend's second question concerned the world squares initiative. A report is in preparation and will be published later this year, following which there will be a consultation. However, any proposals in the report will have a long time scale and neither the House, nor indeed Parliament, can take a decision unilaterally on the closing of the road.

Lord Campbell-Savours: My Lords, will my noble friend firmly resist calls to close Old Palace Yard to traffic, if only because it is where, under the new arrangements, taxis have access from the west of London along the embankment that otherwise would have to go round the whole square?

Baroness Amos: My Lords, it is important that the House understands that these decisions would initially be taken by the House Committee, having been briefed on security matters, and would then come to the House itself. There are a number of interested parties in this, including the residents, road users and workers in this area. Of course we need to look at the balance between safety and security, but Members of this House have all expressed their view in the past that Parliament needs to be as accessible as possible. We do not want to make it impossible for members of the public to come to this building.

Lord Shutt of Greetland: My Lords, I suspected that we would hear about the world squares project, and we have. This seems to have been the most leisurely project ever. We are now told that we are to have a report, and that it will be a long time before anything can happen. What can be done to make this a much less leisurely way forward? Is it possible to have a world square without a world squares project or a world squares initiative?

Baroness Amos: My Lords, noble Lords will know that this is an initiative by the Greater London Authority, the first phase of which is what has happened in Trafalgar Square. Proposals have been made with respect to Parliament Square. A report is being undertaken and will be published later this year. There are a range of interested parties—not just the Greater London Authority, but Westminster City Council, the Metropolitan Police, ourselves, the public, tourists, and the people who live in the area. This is not something for the House unilaterally to decide on, and we are discussing it only as a result of the decision of the GLA to have a world squares initiative in the first place.

Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Shutt, referred to leisurely progress. Does my noble friend the Leader of the House recognise that the first stage of the world squares project—then called the three squares project—was under my control as chairman of the central area board of the Greater London Council in 1976?

Noble Lords: Oh!

Lord McIntosh of Haringey: My Lords, I think my noble friend can relax.

Baroness Amos: My Lords, my noble friend demonstrates the pace at which things move in our city.

Lord Skelmersdale: My Lords, has the noble Baroness the Leader of the House ever driven out of Black Rod's Garden, where you have a barrier immediately in front of you and a pavement beside you? If you are driving a large car or a van—there are often vans in Black Rod's Garden—it is impossible not to drive over the corner of the pavement. Can something not be done about that?

Baroness Amos: My Lords, I will take that back to Black Rod. I have not driven out of Black Rod's Garden, but I have driven out of the car park at the front of the building.

Baroness Fookes: My Lords, has any accident taken place involving pedestrians so far? Driving down the lane towards the entrance of Black Rod's Garden, I have noticed that pedestrians wander all over the place. They are not at all clear which area is for them and which is not. This is an extremely important matter that ought to be addressed without delay.

Baroness Amos: My Lords, no accidents have taken place, but I and other Members of this House are concerned about pedestrians. We are in a slightly difficult position. As the traffic moves relatively slowly through the control lane, pedestrians feel more secure, which is why they wander across the control lane to take photographs and use the barriers to open their maps to see whether they are in the right place. We shall have to keep an eye on that. We are thinking of putting up more notices, for example, but I think that pedestrians are claiming that space for themselves.

Devolution: Legislative Scrutiny

Lord Roberts of Llandudno: asked Her Majesty's Government:
	Whether they will introduce legislation to provide opportunities for legislative scrutiny in the Scottish Parliament and the Welsh Assembly comparable to those in the United Kingdom Parliament.

Lord Evans of Temple Guiting: My Lords, we have no plans to introduce legislation to provide for scrutiny in the Scottish Parliament and the National Assembly to be comparable to that at Westminster. While the systems of legislative scrutiny differ between all three legislatures, each system is capable of providing sufficient breadth and depth to ensure effective scrutiny of the legislation in hand.

Lord Roberts of Llandudno: My Lords, I thank the Minister for his reply. Are the Government satisfied that there are sufficient provisions to ensure that devolved matters, such as health and education, are scrutinised adequately by the Assembly? Only 46 or 47 Members of the 60-Member Assembly are not in government, which is not enough to ensure that there is sufficient scrutiny. Will the Government consider increasing the number from 60 to 80?

Lord Evans of Temple Guiting: My Lords, the National Assembly for Wales already has strong scrutiny procedures and the Government of Wales Bill, which is being debated in the other place today, will ensure that legislation is thoroughly scrutinised when the Assembly acquires legislative powers. At a minimum the Assembly's new standing orders will make provision for scrutiny on the principle, detail and final text of legislation put before the Assembly.
	Crucially, the Assembly, in considering the White Paper Better Governance for Wales, made no recommendation on increasing the number of Assembly Members. The First Minister, Rhodri Morgan, said:
	"You do not need more Assembly Members, you simply need the existing number of Assembly Members dealing with more important issues which they do not have the ability to do now but they would have the ability to do under the provisions of the White Paper".

Lord Forsyth of Drumlean: My Lords, did the Minister have the opportunity to study the edition of the Scotsman that was published on Christmas Eve? The front page story showed that the total additional cost, over and above the previous cost of establishing and running devolution in Scotland, will go over £1 billion in the current quarter. I congratulate the Minister on resisting any temptation to go further down that route.

Lord Evans of Temple Guiting: My Lords, I wonder how surprised the noble Lord would be if I said that I had read the front page of the Scotsman on Christmas Eve. I wish the noble Lord a happy new year. What I always enjoy about exchanges with the noble Lord is that, whenever Scotland appears on the Order Paper in whatever form, it comes back to a discussion on devolution.
	It is working well. Scrutiny in Edinburgh is absolutely brilliant. As the noble Lord knows, there are four stages. We have nothing to worry about. We are very, very happy with devolution in Scotland.

Lord Brooke of Sutton Mandeville: My Lords, do the present arrangements for the Scottish Parliament include the right of pre-legislative scrutiny?

Lord Evans of Temple Guiting: My Lords, yes they do.

Lord Foulkes of Cumnock: My Lords, scrutiny in the Scottish Parliament is very effective, which is something that this Parliament could well adopt. Does my noble friend agree that there is no need whatever for a House of Lairds?

Lord Evans of Temple Guiting: My Lords, one is perhaps more than enough. I agree with my noble friend that the process of scrutiny at Holyrood is extraordinarily thorough, and it is difficult to see how it could be improved.

Lord Smith of Clifton: My Lords, does the Minister agree that whatever deficiencies there are in Scotland and Wales, they are as nothing when compared with the case of Northern Ireland, where Westminster falls down very badly? We have often asked the Government for their suggestions to improve scrutiny because under direct rule it is quite lamentable that Westminster does not give more time to Northern Ireland matters.

Lord Evans of Temple Guiting: My Lords, I am grateful for that comment, which I am sure will be noted by my noble friend Lord Rooker, who is sitting on my right. Today we are talking about Wales and Scotland, but the point has been made and I am sure that my noble friend will take it on board.

Lord Roberts of Conwy: My Lords, in spite of what we have heard, the commission chaired by the noble Lord, Lord Richard, was critical of the lack of scrutiny in the National Assembly for Wales. It further recommended that there should be a membership of 80 in the National Assembly. Why have we not heard the Government's arguments against those proposals?

Lord Evans of Temple Guiting: My Lords, my noble friend Lord Richard suggested an increase in number in his report, but, as I said in my opening remarks, it is interesting that the Assembly itself saw no need to recommend an increase in the number of Assembly Members. The Government's view is that there is capacity for effective scrutiny and it is simply a question of deploying Assembly Members in perhaps a more efficient way.

National Insurance Contributions Bill

Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time. It may be helpful if I begin by setting out some of the background to the Bill before you, before turning to the details of its provisions. As many of your Lordships will be aware, at the time of the Pre-Budget Report on 2 December 2004, the Government made a statement to the other place. This outlined how, despite the best efforts of successive governments, we continue to be presented with ever-more complex and contrived arrangements designed to avoid income tax and national insurance on the rewards from employment. That statement made it clear then that the Government intended to close down this activity permanently.
	That statement mentioned the early attempts at avoidance in this area that took the form of paying bonuses and salaries in gold bullion, diamonds and fine wine. When those routes were closed, employers started to pay bonuses through ever-more sophisticated financial instruments and securities to reduce the national insurance they had to pay, to avoid their obligation to operate PAYE, and to reduce employees' tax bills.
	The tax avoidance disclosure rules introduced in the Finance Act 2004 brought to light a large number—over 100—instances of such schemes being devised or marketed by promoters. This showed that a significant minority of employers and their advisers were continuing to devise, operate and market ever more contrived avoidance schemes to disguise what is, in effect, remuneration.
	Our records show that 60 per cent of disclosed employment schemes involve artificially restricted securities. The remaining 40 per cent are fairly evenly split between employee benefit trusts, options and future contracts, exempting income, service companies and other employment products. Only a handful—some 5 per cent—are what we would consider to be other than contrived avoidance schemes.
	That sets out the context in which this Bill is being brought forward. To emphasise this point I would mention to your Lordships that there have been numerous examples of contrived schemes that the present Government have had to contend with since 1997. Examples include contrived schemes involving employee benefit trusts; soft currency loans, such as those denominated in Turkish lira; adjustable options; special purpose vehicles; and artificially restricted shares.
	I do not propose to take up the House's time with detailed descriptions of these schemes—some of them are very complex indeed. But it is clear that without prompt and decisive action there is a very real possibility of tax and national insurance contributions avoidance schemes continuing, to the detriment of the Exchequer and to the many employers and employees who pay their fair share of tax and national insurance.
	The Government gave notice in December 2004 of their intention to deal with any future arrangements designed to frustrate our intention that employers and employees should pay their fair share of tax and national insurance contributions on the rewards from employment. Where we become aware of arrangements which attempt to frustrate this intention we will introduce legislation to close these down, where necessary with effect from 2 December 2004.
	I emphasise that the Government are resolute about this, and that statement still stands today as strongly as it did when it was made. The Government continue to look closely at what has happened since that date. The Government want employers and their advisers to be in no doubt that, if they continue to avoid their responsibilities or are thinking of doing so in the future, we will not hesitate to introduce further legislation to close down their schemes—if necessary, from an effective date earlier than the announcement of such legislation, potentially from the date of the statement of 2 December 2004.
	As a first step in demonstrating the Government's commitment to take action, Schedule 2 to the Finance (No. 2) Act 2005 was introduced to strengthen the income tax rules dealing with employment related securities, dating back to 2 December 2004. The Government had already published a draft technical note alongside the Pre-Budget Report in 2004, explaining the proposals, followed by draft legislation in February 2005. Interested parties have therefore had an extensive period to scrutinise and comment on the detail of the provisions that were then fully debated in the other place during the Standing Committee stage of that Act.
	The second legislative step demonstrating the Government's continuing commitment to take action against avoidance is the introduction of this Bill. It is key to achieving the Government's objectives of fairness and opportunity by ensuring that all pay their fair share of tax and national insurance. It is also an essential element in building a serious and credible deterrent against future avoidance activity.
	The Bill will ensure that the Government can deal with any arrangements that emerge in future that are designed to frustrate its intention that employees and employers should pay the proper amount of tax and national insurance on the rewards of employment. As there is no annual equivalent of the Finance Bill for national insurance, this Bill provides the necessary powers to apply national insurance to payments from these schemes.
	Where the Government become aware of arrangements that attempt to avoid national insurance contributions as well as tax, they will introduce regulations to close them down, where necessary from 2 December 2004. That action will not affect the vast majority of employers and employees who organise their affairs in a straightforward and transparent way. In particular, genuine employee share schemes and share option plans will not be affected. The Bill provides for a power to make regulations in respect of national insurance that take effect on or after 2 December 2004, to reflect backdated tax changes. The power will allow for national insurance liability to be charged from 2 December 2004, if necessary.
	The Bill is needed to extend existing regulation-making powers and to make it possible to impose a national insurance charge on disguised remuneration that is capable of taking effect from that date. Currently, an NIC liability can usually be charged only from the date of NIC regulations, except in limited circumstances where the regulations can be backdated to the beginning of the tax year in which the regulations are made. This is in contrast to the position for tax legislation, where liability can, if the legislation so provides, be applied back to a date preceding Royal Assent.
	The Bill also allows for consequential changes for the purposes of contributions, contributory benefits and statutory payments to be made where appropriate. For instance, a national insurance charge may be levied back to 2 December 2004, to align with the start date of anti-avoidance tax measures. In this case, the provisions of the Bill, and regulations made under the powers in this Bill, will ensure that those contributions will count for the purposes of contributory benefit and statutory payments.
	The Bill also provides a power to extend to national insurance the avoidance arrangement disclosure rules that currently apply to income tax. Finally, it provides a power to prevent the use of national insurance contribution elections and agreements over shares and securities that have been targeted by backdated national insurance regulations made under this Bill. That will mean that employers cannot pass on to their employees the national insurance liabilities that they have tried to avoid.
	The provisions in this Bill extend to Great Britain and Northern Ireland. Clauses 1, 3 and 5 are intended to extend to England and Wales and Scotland only; Clauses 2, 4 and 6 are intended to extend to Northern Ireland only; and the remaining provisions of the Bill are intended to extend to England and Wales, Scotland and Northern Ireland.
	Your Lordships will of course be concerned to know that the powers provided for in this Bill go only so far as is necessary and no further. Significantly, the Government have ensured that the Bill also contains important safeguards to ensure that regulations made under the Bill take full account of human rights considerations. This is in addition to the Government's existing duty to make regulations that are compatible with the European Convention on Human Rights.
	The power to make regulations altering liability is restricted to reflecting, so far as is possible, employment remuneration measures in tax legislation—normally via Finance Acts—and is intended only to be used to reflect tax anti-avoidance measures. So where such regulations are made, the other place will already have had the chance to consider any relevant human rights issues on backdated tax legislation during the passage of the relevant Finance Bill or other legislation. Furthermore, to ensure that the regulations under this Bill are subject to parliamentary scrutiny by both Houses, they will be subject to the affirmative resolution procedure.
	This Bill also includes a specific provision to ensure that where, for instance, as part of a package of anti-avoidance measures, there is exceptionally a reduction of national insurance liability for past periods, any existing or future benefit entitlement will not be affected.
	The Government are committed to publishing draft regulations under the powers in this Bill a minimum of 12 weeks before they are made so that employers and their representatives have an opportunity to comment on the technical content of any proposed NIC changes. Once this Bill has received Royal Assent, any NIC legislation will have to be laid within 12 months of the corresponding retrospective tax legislation.
	In pursuit of that commitment and to assist in consideration of this Bill, I should mention to your Lordships, if you are not already aware, that draft regulations were published on 14 November in respect of the first use of the powers in the Bill to backdate national insurance liability to reflect the employment-related securities anti-avoidance provisions in Schedule 2 to the Finance (No. 2) Act 2005; and to prescribe an additional statement to be contained in future forms of national insurance elections that will make clear the election cannot transfer backdated employers' national insurance liabilities to their employees. This regulation is to be made using existing powers in the Social Security Contributions and Benefits Act 1992 and extends the tax avoidance disclosure rules to national insurance.
	Before I conclude, I wish to draw to the attention of noble Lords the report of the Select Committee on Economic Affairs on the Finance Bill 2005. In the summary of conclusions and recommendations, the carefully considered report of the noble Lords said:
	"We listened with increasing concern to the catalogue of ingenious schemes devised over the years in order to pass remuneration value to employees (particularly bonuses to the higher paid) in a way that attempted to avoid or reduce income tax and NICs. We took note of the view of HMRC that, even after the measures in the present Bill had passed into law, 'there will be something new, the whole history of this suggests there will be, and we will have to counter that when we get there'. Given the vast amount of tax at stake and in the light of that history we were persuaded that an exception to the normal approach to backdating was justified. Moreover, it seemed to us that the suggestion that professionals might now find it difficult to advise about remuneration packages that included share schemes and share option plans for the generality of employees was an exaggeration."
	I would take this opportunity to confirm to your Lordships that the Government wholly concur with that conclusion.
	In conclusion, I hope I have explained why the Bill is important and necessary to ensure fairness. As I have said, it will not affect the vast majority of employers who do not seek to avoid their tax and national insurance liabilities through avoidance schemes. I have also explained how a small minority of employers have persistently sought to avoid their obligations. This Bill is an appropriate and proportionate response to national insurance avoidance of that kind, and I commend it to the House.
	Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)

Lord Skelmersdale: My Lords, the House will be extremely grateful to the Minister for his introduction to this quite technical Bill, but I found interesting what he did not say. First, the Treasury in its current straitened circumstances needs all the revenue it can get. Secondly, until Royal Assent of the Finance (No. 2) Bill to which the Minister referred, what was going on was totally legal. It is one thing to stamp on such tax avoidance schemes at a particular time. I disagree with the conclusion of the committee to which the Minister referred, and which the Government accepted with alacrity, that retrospection is suitable in this particular case.
	As the Minister said, most of the Bill arises from a Government warning in a Written Ministerial Statement that both tax and national insurance contributions would be payable on non-pay remuneration of employees from 2 December 2004. As far as the tax position was concerned this was enacted in last year's Finance (No. 2) Bill, which became law last July. It was to be retrospective, as promised, to the date of the Written Statement some six months earlier.
	In my book, retrospective legislation is bad legislation, whether of tax or national insurance. Unfortunately, even though your Lordships' House conventionally rails against retrospective legislation and often votes it down, this House is barred by the Parliament Acts from amending finance Bills and could do nothing about it. None the less, the back-dating of tax on non-pay remuneration is now law and we have to accept that fact. I suppose the Government could claim that it is only for six months so they can get away with it—which they have.
	Today we have a totally different situation. We are not concerned with the tax position of employees, we are considering the national insurance charges of both employers and employees. The question arises whether the employer would have remunerated his employees so generously if he had been aware of the extra subvention he would have to pay. It is no good the Minister saying that he was warned. How many employers read Written Ministerial Statements? I suspect very few, unless they have a government relations department that scans Hansard for them. In any event, having been told by the latter or by their trade organisations, they might have felt that they had got away with not having to pay NICs. Is this Bill then due to an afterthought? Why has it taken so long to introduce it? Why could its contents not have been incorporated in Schedule 2 to the Finance (No. 2) Act last July, or would that imply the breaking of a golden rule of social security—that national insurance charges are not a tax? Could the Minister read from the updated brief why NICs are not a tax?
	I was sent a Written Answer at the end of the last Session that is revealing. I had asked Her Majesty's Government whether the money saved by moving women's retirement age from 60 to 65 would remain in the National Insurance Fund. The noble Lord, Lord McKenzie of Luton, himself answered that the Government would continue to make decisions on NICs and social security benefits funded from the National Insurance Fund in the Budget and Pre-Budget Report. In other words, the Chancellor is fully prepared to appropriate the money from the fund into general taxation rather than, as sometimes happens, the other way round. I shall have more to say about this when we debate the Turner report in a few weeks' time.
	To return to the Bill proper, much of it is to do with the threat of retrospection—for a minimum of 18 months. Can the Minister give me any precedents for NICs being backdated as far as that? If not, he will surely suffer the condemnation of your Lordships' committee on deregulation, which I hope will also comment on the word "expedient", which appears several times in the first two clauses. It would be helpful both to me and to the committee if the Minister said when it will and will not be expedient for national insurance charges to be backdated. Whether they should be at all, I shall leave as a matter for discussion in Committee.

Lord Rosser: My Lords, I express my support for the Bill which, as my noble friend said, is intended to deter employers from using schemes to avoid paying national insurance contributions on the rewards from employment. Whether, if the Bill is passed, that objective is achieved remains to be seen. The tax avoidance planning industry—it is an industry—seems to employ some of the brightest individuals in the country, which speaks volumes about our priorities and culture. No doubt, as one loophole is closed, able minds will continue to seek to open others, as has already happened following previous legislation in this field by the Government.
	The battle to persuade a small section within society to pay its fair share has been long-running and it would be highly optimistic to believe that the Bill brings an end to the saga, despite intended powers to close down avoidance schemes, introduce national insurance contributions liability effective, if necessary, back to December 2004 and extend current disclosure rules to cover national insurance contributions avoidance schemes. However, it is a battle that should continue to be waged, as what is going on is clearly a slap in the face for the overwhelming majority of employers and employees who pay their fair share.
	I understand that the latest information available shows that a relatively small number of individuals have received considerable bonuses as a means of avoiding paying their fair share of tax and national insurance contributions. Apparently, a few hundred employers are engaged in the use of schemes on the rewards from employment whose purpose is simply to avoid income tax and national insurance contributions. I gather that it is estimated that the measures in the Bill will, if successful, result in additional national insurance contributions running to a few hundreds of millions of pounds per annum.
	National insurance contributions avoidance on a significant basis is usually associated with annual bonuses paid to a small number of highly paid employees and directors, especially in financial services. The financial services industry is a major employer and, as a result of its internationally recognised expertise, brings considerable earnings and other significant benefits to this country. However, that does not mean that some of its practices and parts of its culture should go unchallenged.
	Last July, I read an article that commented on how often individuals and firms in the financial services industry failed to manage conflicts of interest and chose to better themselves at the expense of their clients. The article then referred to a theory that the root of the problem was that rewards are too great, finance as a whole was insufficiently competitive and made excessive returns and that that had made possible the accumulation of huge wealth and let loose a culture of uncontrolled greed that eventually distorts judgment. The author of the article in the London Evening Standard was the City columnist of that paper—hardly an unsympathetic commentator. He concluded by saying that, whether the theory on the root of the problem was true or not, unless firms genuinely embraced ethical behaviour so that nothing else was tolerated, they must in time destroy the credibility of the whole sector. I do not think that avoidance schemes on the scale and of the kind that the Bill is intended to end are ethical, even though they may currently be legal.
	National insurance contribution avoidance schemes either reduce the amount of money available for further improving the National Health Service and funding contributory benefits or mean that the overwhelming majority who are not engaged in avoidance have to pay more than they otherwise would to make up the shortfall resulting from the actions of a small minority. It is rather like taking from the less well off, including in this context what is sometimes referred to in the media as middle England, to provide money for the well rewarded: there is nothing very ethical in that. In significantly reducing national insurance contributions, avoidance can result in a better competitive situation cost wise for those who are not paying their fair share, in comparison with the overwhelming majority who do. Once again, there is nothing very ethical in that.
	Addressing that problem, as the Bill seeks to do, will help to restore a level playing field and to encourage proper competition. If we value the goal of a fairer society, we need to address a situation where a small number of those employers or employees who are already well off decide to use their financial clout to pay one of the major accountancy firms to produce contrived and elaborate avoidance schemes of the kind being targeted by this Bill.
	What is happening in this area, where it seems that almost anything goes, is in marked contrast to what happens at the minimum wage end of the employment market where the numbers involved in the avoidance schemes covered by this Bill are likely, shall we say, to "be limited". I do not have the figures for 2005, but the annual survey of hours and earnings estimates for April 2004 showed that 227,000 jobs were held by people aged 22 and over with pay less than the adult national minimum wage of £4.50 per hour. While it does not automatically follow from that statistic that 227,000 people entitled to the minimum wage were being paid a lower rate, a study undertaken for the Low Pay Commission suggested that there was a high level of minimum wage underpayment in parts of the clothing and restaurant sectors. The incidence of non-compliance with the minimum wage found in investigations arising from complaints continues to be high at around 40 per cent, although no one knows the extent of undetected non-compliance.
	The last report from the Low Pay Commission referred to concerns that were expressed to it that no prosecution cases for non-compliance had been brought by the Inland Revenue. The commission also noted the weakness of the deterrent to non-compliance and contrasted it with the fact that interest is payable on any arrears of company or individual tax. It recommended the introduction of interest charges payable on arrears arising from minimum wage underpayment and financial penalties for seriously non-compliant employers.
	Any movement in the national minimum wage is normally made only following a detailed report by the Low Pay Commission. Its recommendations, reflecting the composition of the commission, seek to reflect not just the interests of the low paid but also those of employers. Yet many employers do not seem to carry out even a remotely comparable rigorous, open and transparent exercise to that undertaken on whether the national economy and companies can and should afford a few extra pence per hour for the least well off, when it comes to the very much more substantial, and well above average, improvements that now seem to be made each year in the remuneration packages of those in the board room.
	In addition, in a small number of cases, particularly in relation to bonuses in the City, there are ever more contrived tax and national insurance contributions avoidance schemes designed to increase further the already highly attractive financial position of those employers and employees involved. Although I do not often agree with the City columnist of the London Evening Standard, in this case the thrust of his comments were well directed. If we are to move closer to the goal of a fair society, we cannot allow situations to go unchallenged under which a small minority of the very well rewarded are able to avoid their obligations to society to the detriment of the overwhelming majority. I support the Bill and only hope that it achieves its intended objectives.

Lord Newby: My Lords, we also support the purpose of the Bill. The noble Lord, Lord Skelmersdale, said that the Treasury needed all the revenue that it can get. As an ex-Customs and Excise man, my approach is that the revenue department should get all the revenue to which it is entitled. We are talking specifically about contrived schemes. I realise that there is a debate to be had on what "entitlement" means in certain circumstances. But if, as here, we are talking specifically about highly complicated and sophisticated schemes, the sole purpose of which are to avoid taxation, there is no doubt that we are referring to a systematic attempt to reduce the amount of money which should legitimately go into Revenue coffers. It is very important, not just in stopping unfair beneficiaries of such schemes, but for the overall credibility of the tax system. If we expect, as we do, citizens to pay their taxes relatively unquestioningly and as individuals not to go to great lengths to avoid them, it is important that the legislature is seen to be taking steps to bear down consistently on those at the top end of the income scale, who as a result of that position, can employ people who can go to great lengths to reduce their tax liability.
	I was very pleased to hear the Minister pray in aid of the Bill the support received from the Economic Affairs Select Committee. My recollection is that when I was a member of that committee's sub-committee dealing with finance Bills, the Treasury did all it could to avoid your Lordships' Select Committee and treated it at times with near, if not actual, contempt. I only hope that the welcome that the Minister gave to its recommendations in this case signals a broader acceptance of the Committee's validity and work.
	I was also pleased to hear the noble Lord say that there would be proper consultation on all secondary legislation in the Bill. He mentioned a 12-week consultation period. As I have said before in your Lordships' House, it gives me no great comfort to hear Ministers say that secondary legislation will get proper scrutiny because it is introduced under the affirmative resolution procedure. Given that secondary legislation cannot be amended in any event, the fact that it comes forward under the affirmative resolution procedure is of absolutely no help, in technical matters such as this, in getting the best possible legislation. The Minister says that the Government intend that all secondary legislation will have a 12-week consultation period. I hope that they will stick rigidly to that promise. We are talking about very technical matters which, frankly, very few Members in your Lordships' House or in another place can look at in huge detail. It needs time for the relevant experts to opine on it.
	A question was raised in another place to which I am not sure a satisfactory answer was given. I apologise if I missed it. It relates to national insurance being claimed back from employees who have now left the company in which they were employed in December 2004. What route is followed in those circumstances, and how easy or difficult is it to get at those employees who may be employed elsewhere in the UK or who may have retired? I would welcome the Minister's comments. I also welcome the Minister's thoughts on the comment of the chairman of the Treasury Select Committee that, given the general nature of the legislation, it amounts to a general anti-avoidance rule. The Minister will be aware that there is a debate among tax experts on whether there should be a general rule as opposed to very large amounts of primary and secondary legislation dealing with specific schemes. We on these Benches are looking at this. I see some attraction in moving towards such a general rule, but I wondered whether the nature of this legislation presaged a change of thinking about it on the Government's part.
	Finally, on the relevance of this legislation to the tax system as a whole, does the Minister agree with the views expressed by Edward Troup, a leading authority on British tax law who advises the Select Committee in another place. He said:
	"The aim of Government should be to . . . do its best to ensure that the 'return' from tax planning is as low possible . . . a simpler tax system with fewer reliefs, exemptions and discontinuities would, in the long term, frustrate most of the tax evaders' ploys . . . Management has to decide between whether £10,000 of tax planners' fees is likely to give a better post-tax return than the amount spent on, say, advertising. This judgment is not immoral, it is inevitable".
	I am sure that is the case and I hope that the Minister will impress on his Treasury colleagues the need to devote the same kind of priority to simplifying the tax system which latterly they have devoted to clamping down on tax avoidance schemes.

Baroness Noakes: My Lords, I thank the Minister for introducing the Bill with his customary precision. I also thank my noble friend Lord Skelmersdale for his succinct and targeted comments on retrospection.
	The Minister will be aware that in another place we did not oppose the Bill and as a headline that remains our position. But we are not completely uncritical and we have some concerns that we will want to explore in more detail as the Bill progresses through your Lordships' House. It contains a mere seven substantive clauses dealing with three main topics. The easiest for me to deal with is Clause 7, which extends the disclosure requirements that apply for tax purposes to national insurance. The Minister will be aware that these disclosure requirements were controversial when they were announced and to some extent they still are, especially in the light of the Pre-Budget Report proposals on disclosure periods. But this Bill, by adding national insurance schemes, does not add new issues to that and therefore we have no problems with it.
	The heart of the Bill lies in Clauses 1 to 4, which empower the Treasury to make regulations relating to national insurance contributions—I cannot quite bring myself to call them NICs, even though that would save nine syllables. The regulations will have a retrospective effect going back to the date of the ministerial Statement made on 2 December 2004. That, as my noble friend Lord Skelmersdale has already pointed out, takes us into the issue of the degree of retrospection that can be tolerated within our law. It also takes us into the areas of legitimate tax planning and tax avoidance, as well as the need for certainty among taxpayers. I shall refer to "taxpayers" because "national insurance contribution payers" is rather a mouthful. Also, nowadays national insurance contributions are only a hair's-breadth away from being a tax. We might as well regard it as such for all practical purposes.
	It is the tradition of this country, one that can be traced back to Magna Carta, that citizens should not be taxed except by clear words in statute. That has been modified over the years and there has been an increasing acceptance that statutes can apply retrospectively, particularly in the case of tax avoidance, provided that certain tests are met. When he was in another place, my noble friend Lord Rees set out four tests that such legislation should meet in order for it to qualify for retrospective effect. The first of those tests was that warning should be given in another place and that the warning should be precise in form. Back in 1978 he said:
	"A mere suggestion that there are vague schemes of tax avoidance that must be countered should not suffice".—[Official Report, Commons Standing Committee A, 6/6/78; cols. 718–19.]
	That is why the nature of the Paymaster General's announcement on 2 December 2004 has rightly been the subject of considerable scrutiny.
	As I understand the Government's position, that Statement applies not only to the specific avoidance schemes involving securities that were covered in last year's second Finance Act, as well as in the draft regulations that will come into effect in relation to national insurance contributions if this Bill is passed, but also to any possible scheme which sought to avoid or reduce income tax or national insurance on what the Statement referred to as the "rewards of employment". The Government's position is that that should be the case even if such a scheme had not even been thought of in December 2004. We find it difficult to see how that meets a test of precision. It seems to take the principle of retrospection too far.
	As I said previously, we understand why the Bill includes a specific extension of the disclosure regime. But we find it difficult to understand why the Government find it necessary to introduce an unprecedented level of retrospection—as I believe it genuinely is—without even waiting to see whether the disclosure regime will prove its worth by providing the notice that the Government require to step in and deal with schemes they regard as unacceptable. When put in the light of the reduction in disclosure periods announced in the Pre-Budget Report, it is increasingly difficult to see why this degree of retrospection is reasonable.
	When the Government introduced the disclosure regime in the Finance Act 2004, it was in response to a conscious decision not to introduce a general anti-avoidance rule. I understand that one reason for that decision was the complexity and cost of introducing a clearance procedure. I do not want to go into the pros and cons of having a general anti-avoidance rule versus disclosure, but I do want to echo a point made by the noble Lord, Lord Newby. In effect, we now have a general anti-avoidance rule for tax and national insurance on earnings, without having an equivalent clearance procedure. That must raise issues of fairness for taxpayers.
	The taxpayer ends up between a rock and a hard place. Judging by various comments made by senior officials in Her Majesty's Revenue and Customs, that is exactly where they, if not the Government, would like to see taxpayers. I suggest that a tax system introducing such a degree of uncertainty is an unhealthy development and potentially unfair to taxpayers. The Government have made much of how they are entitled to collect a fair contribution in tax and insurance, but they seemingly fail to acknowledge their duty to set up a legal regime which has clarity. Surely it should not be the obligation of taxpayers to pay whatever the government of the day deem to be fair in the absence of clear law. We are essentially talking about clarity.
	The Explanatory Notes are somewhat unusual, since they contain nearly two pages of analysis of the Bill's position under the European Convention on Human Rights—the Minister referred to that. But the length of treatment demonstrates that, if nothing else, the Bill is clearly in difficult territory so far as the ECHR is concerned. I will not go into detail today, but many tax professionals are clear that the legislation will probably be challenged in the courts on ECHR grounds.
	The Chancellor told the Treasury Select Committee in another place that the convention,
	"gives a government the power on behalf of the tax-paying public to raise taxes in a fair and proportionate way".
	So the courts are likely to be asked to rule on whether the blanket retrospection covered in the Bill is fair or proportionate. In the meantime, we have legislation which lacks certainty.
	I have two detailed questions for the Minister. First, I hope that he can clear up some confusion about numbers; I know that he is very good with numbers. The regulatory impact assessment talks about additional national insurance contributions amounting to £95 million for 2004–05 as a result of the Bill, and £240 million per annum thereafter. Until just before Christmas, the HMRC website referred to £200 million in 2004–05 and £500 million a year thereafter. My honourable friends in another place tried several times to get clarification on that, but they failed. There is a great mystery: during the Christmas recess that reference on the HMRC website to higher figures disappeared without trace. So I am asking the Minister to explain, not the difference in the figures, but what has happened, and also to confirm the Government's latest position on the estimates of additional national insurance contributions that they expect.
	My second question is a related one: how will the Government measure how much extra national insurance this Bill will achieve? Will it be based on additional assessments raised under specific regulations made under the Bill, or will it include something for national insurance that might otherwise have been avoided if the 2004 statement had not frightened off employers and employees from doing something fancy? In other words, if I table a Question for the Minister to answer—which I certainly hope to do—will that Answer be real or imaginary?
	I shall conclude with two general points. First, the Bill continues the blurring of the line between avoidance and evasion that has occurred under this Government. Tax planning is an entirely legitimate activity, which, if successful, leads to the avoidance of tax, and equally in relation to national insurance. It is entirely right and proper that the Government should ensure that the opportunities for avoidance are minimised, and we support them in that. Avoidance is not the same as tax evasion, however, which is not lawful. The Government have never been willing even to measure the scale of evasion, but it is generally believed to be a much greater problem than that of avoidance. Will the efforts of the Treasury and HMRC towards avoidance and evasion be proportionate to the scale of the respective problems? Specifically, what are the Government doing to minimise the much bigger problem of evasion?
	Secondly, many of the opportunities for tax avoidance arise out of tax incentives deliberately placed in the tax code by the Government. The tax breaks for small companies are a recent example. In the early days Government ministers portrayed these as a positive encouragement for unincorporated businesses to incorporate. Now, however, they describe incorporation as an abuse of the system, and have belatedly reversed their own incentive systems. That tells us that tax incentives are only a nuance away from tax avoidance in the Government's eyes, but also that complexity—which is brought about in part by the Government trying to use the tax system beyond its natural purpose of collecting revenue—is also a root cause of avoidance.
	I keep hoping that the Government will find themselves on the road to Damascus, and will be converted to the cause of a simpler tax and national insurance system. That road may well lead to flatter taxes and a reduction in the number of people within the tax net, but it would certainly lead to a reduction in the opportunities and incentives for tax avoidance. It would also lead to a much fairer system that could be achieved without many of the undesirable features of retrospection that have been included in the Bill.

Lord McKenzie of Luton: My Lords, this has been an interesting, if relatively confined, debate about an important Bill that is central to the Government's aim of deterring tax and national insurance avoidance. Before I address some of the specific points raised, I hope your Lordships will permit me to reiterate the purpose of the Bill. It demonstrates our continuing commitment to take action against avoidance; it is key to achieving the Government's objectives of fairness and opportunity by ensuring that all pay the correct amount of tax and national insurance; it is an essential element in building a serious and credible deterrent against future avoidance activity; and it is needed to secure a total tax and insurance yield of £200 million in 2004–05, and £500 million per annum thereafter. I stress that the figure is for both tax and national insurance.
	As the income tax disclosure provisions have demonstrated, it is not possible to anticipate the range and complexity of these extremely contrived arrangements. The Government intend to close down such avoidance activity permanently, and this Bill will ensure that the Government can deal with any arrangements that emerge in future that are designed to frustrate their intention that employers and employees should pay the proper amount of national insurance on the rewards of employment.
	On the specific issues raised by noble Lords, the noble Lord, Lord Skelmersdale, was critical of retrospection in the Bill and disagreed with the view of the economic sub-committee of your Lordships' House. I stress to the noble Baroness, Lady Noakes, that the retrospection is limited. It is tied to a tax measure which is retrospective, and would have to be fully debated in another place. It is subject to a three-month consultation process before regulations are made and to the affirmative procedure. It is simply not retrospection at the will of the Treasury.
	It was suggested that the ministerial Statement of 2 December was not widely understood by taxpayers. I disagree. A lot of publicity was given to the Statement and to the issue itself. We should recognise that these are not in-house schemes devised by ordinary small companies or by individuals watching the television while sitting in their living rooms. These are highly sophisticated avoidance schemes, promoted generally by large accounting and legal firms. They are well aware of Statements of this nature and have significant empires directed to all sorts of legislation. To suggest that this measure will not come within the purview of those who will mainly be affected by it is simply not correct.
	I was asked why the measure was being introduced now and whether it was an afterthought. The answer is "no". It could not be done in a Finance Act; a separate Bill is needed. This is the first opportunity to introduce legislation in the form of a national insurance Bill. That is why on an ongoing basis we need regulations that do not require primary legislation or a slot in the Queen's Speech and the parliamentary programme.
	It was suggested that the Government need the money. We could spend a lot of time reviewing the Government's finances but we should recognise that we are one of only two countries in the G7 with net debt below 40 per cent of GDP. We have met the golden rule and the sustainable investment rule. As I am sure noble Lords will readily recognise, that is not an issue; the issue is about fairness.
	I believe it was suggested that the schemes that are now being addressed are not illegal until Royal Assent is given to the Finance (No. 2) Act. That may be technically correct but the purpose of the Statement in December 2004 was to give due notice that these kind of schemes would not be permitted in the future. Although the technical legislation followed, given the nature of these schemes there should have been no doubt that both tax and national insurance legislation would be put in place to counter them.
	I was pressed on the meaning of "expedient". Frankly, it depends on the particular circumstances. I would not like to define in detail today the circumstances in which, and how, that might be applied. It depends on individual circumstances. It would be wrong to try to pre-empt that by making a statement from the Dispatch Box.
	I have dealt with the suggestion that no one knew about the measure. I believe I was asked whether we could point to any schemes that warranted this legislation. The purpose of the December 2004 Statement, this Bill and the Finance Act 2005 is to prevent such schemes coming forward. There has been a deterrent effect. I listed some of the schemes that have existed since 1997. We believe that without both parts of the legislation they would continue to be devised.
	My noble friend Lord Rosser gave strong support to the provision, for which I am grateful. He itemised the funds which are protected by the measure. He rightly pointed out that the avoidance that is going on is associated particularly, although not exclusively, with bonuses, and generally with bonuses comprising significant amounts. The thing about bonuses is that in a sense they are one-offs, so it is easier without provisions of this nature to direct avoidance, because you can plan the point, moment and manner of payment quite precisely. That is why avoidance has grown up particularly around that.
	My noble friend talked about ethical behaviour, and I agree with that. The legislation sends a strong message to employers, the majority of whom do not engage in these sorts of schemes. They can now continue not to engage in them with the added comfort that no one is going to get a competitive edge because others are not prepared to adopt the same ethical standards. My noble friend made some very telling points about the comparisons of non-compliance with low pay and what is happening in the tax system.
	The noble Lord, Lord Newby, gave his support to the Bill, and I am grateful for that. In a sense it is trying to make sure that we garner the revenue to which we are entitled and which was intended under the legislation that is in place. He stressed that the schemes that these provisions are aimed at are highly contrived. The reality is that we talk about certainty in the tax and national insurance system, but generally people know when they are straying into those areas; I do not believe, if you look at the schemes that have come forward, that employers have unwittingly found their way into those schemes. They do it purposefully and often on the back of very strong professional advice, which I imagine is quite expensive. A consultation period of 12 weeks is a clear commitment in the secondary legislation, and it will follow the debate taking place in another place on the related tax provisions.
	The noble Lord asked me a question about the clawback of national insurance when someone has left employment. An employer will be able to recover the primary NICs from any payment subject to existing limits. The rights of employers have to be balanced with the rights of employees; therefore it is possible that the employer will not be able to recover all the NICs that may be due, but that will not affect most employers, who do not engage in avoidance. I am not sure that deals fully enough with the particular point that was raised, so I will revert to the noble Lord on that.
	The noble Lord touched on issues of general anti-avoidance rules, and some of the difficulties with those and with clearance procedures are well aired. As far as the Government are concerned, all measures must be kept under review, because we are absolutely committed to making sure that people pay their fair share. I know that there is a big debate about what that means in any given context.
	I would take issue with both the noble Lord and the noble Baroness, Lady Noakes, on the issue of simplicity. If you look at what has happened to national insurance, it demonstrates overwhelmingly the reverse of the point that is being made. The complexity has followed the avoidance; not the other way around. You have a relatively straightforward system to start with, someone gets around that with a device that is not caught by it; there is legislation to deal with that; a further measure to get around that; and legislation to deal with that. The complexity has followed the avoidance; not the reverse. Indeed, one of the benefits of this measure is that it negates further complexity because the nature of the retrospection means that it is less likely, going forward, that greater complexity will be needed.
	The noble Baroness, Lady Noakes, restated the position of the Conservative Party that it does not oppose this Bill. I understand that position, and I recognise that we will probe some of these matters further in Committee. She agreed that the Clause 7 disclosure requirements do not really add new issues to the matter, which has been around for a little while. She referred to the four tests of the noble Lord, Lord Rees, and the issue of how precise was the warning of 2 December 2004. I argue that it was precise enough. I stress again that employers know when they are getting into the ambit of such schemes. If you look at the history of some of the intricate nature of the schemes, people know what they are doing. It has become clear that the existence of that Statement and the legislation that has followed, including this Bill, have helped negate some schemes that would have otherwise gone forward.
	The convention on human rights was touched on. We will have to see how that issue develops, but the clear advice to the Government is that the Bill is compliant and proportionate. I say again that the Bill is targeted on retrospective tax measures, which go through the procedures of another House and the affirmative procedure in this House.
	I hope that I have cleared up the numbers. I think that the £95 million and the £240 million relate to national insurance only, whereas the £200 million and the £500 million relate to national insurance and tax. If I am not right about that, I will write to the noble Baroness. Quite who was diligent enough over the Christmas break to update the Government's website, I do not know. I have not checked back to see what the sequence was, but I believe that I have given the correct explanation of the numbers.
	The debate about the gap between avoidance and evasion is interesting. I guess that, when push comes to shove, the two can adjoin closely. However, that is perhaps a debate for another day. I reiterate the point that the measures in the Bill are proportionate.
	The point was made that some of the avoidance issues arise from the incentives that are offered. That underlines the difficulties that the Government face in offering incentives through R&D tax credits and lower rates for smaller companies. If you put in place incentives, for which business often presses, there is a risk that there will be abuses and that the incentives will have to be reversed or ameliorated. The more simplicity you have, the more likely you are to have avoidance—the complexity follows the avoidance.
	The question was asked whether the Government are acting proportionately in relation to evasion and avoidance. I argue that they are. The difficulty with evasion is knowing precisely how widespread it is. One hopes that, if you know that there is evasion, it should be relatively easy to tackle it.
	These are big issues. We want taxpayers to be compliant, as I believe people in the UK overwhelmingly are. We should be pleased about that, as it is certainly a contrast to what goes on in some countries, although that does not negate the need for anti-avoidance provisions such as those in the Bill that ensure that people do what they are required to do.
	I think that I have dealt with all the points that have been raised. If I have not, I will look at Hansard and write to noble Lords.

Baroness Noakes: My Lords, how will the Government measure how much additional national insurance has been obtained under the Bill? Will there be a proper, auditable measure or will the figure be a product of the imaginative minds of Treasury civil servants?

Lord McKenzie of Luton: My Lords, I am sure that it will be the product of very able minds in the Treasury and the Civil Service. It will in part be a recognition of what has been stopped, which will clearly be auditable, but it will also reflect a view of what has been deterred, on which it is less easy to be certain. Some of that might relate to disclosures that have been made under the disclosure rules and reflect the extent to which the schemes are not taken forward. I am not sure how easy it will be to audit all that, but perhaps we can revert to the issue at later stages of the Bill. I believe that the figure will be a combination of not just what has been caught and assessed in back taxes and extra taxes, but tax and national insurance contributions that have been protected. There is a good deal of evidence about the matter. The disclosure rules threw up in excess of 100 schemes relating to tax and national insurance that were being promoted and were around in the system. On the basis of some of those disclosures, the belief is that a lot of those schemes had not been taken forward.

Lord Skelmersdale: My Lords, to save the Minister writing a letter, I should say that I asked him whether there was any precedence for backdating the liability of national insurance contributions for 18 months or so, which is the period that we are likely to be talking about.

Lord McKenzie of Luton: My Lords, I do not believe that there is, because the legislation does not permit it. That is why we need the Bill. At the moment, tax legislation can be backdated to the start of a tax year and before, through a Finance Bill, but national insurance legislation does not permit that. Obviously, therefore, without this legislation it would not have been possible for that backdating to have taken place. We need the Bill to allow it where necessary. There is hope that—beyond the draft regulations already in place that tie up with the Finance (No. 2) Act 2005—we will never need to use the provisions again, because people are compliant and have understood the determination of the Government to tackle the issue. We will have to see.
	I am grateful for the opportunity to explain the issues that have given rise to the Bill. There are clearly a number of points that we can expect to debate at greater length when the Bill moves to Committee. I look forward to that and commend the Bill to the House.
	On Question, Bill read a second time.

Council Tax (New Valuation Lists for England) Bill

Lord Bassam of Brighton: My Lords, on behalf of my noble friend Lady Andrews, I beg to move that this Bill be now read a second time. Before I start, perhaps I should explain that my colleague and noble friend Lady Andrews is unable to be with us today because of family bereavement. I am sure that all Members of your Lordships' House will want to send their sympathies and support to her.
	This short Bill of two clauses comes before the House from the other place unamended and with the support of Her Majesty's loyal Opposition, who went on record as saying:
	"There is little difference between the Opposition and the Government . . . We think that postponement is a good thing".—[Official Report, Commons, 1/12/05; col. 416.]
	The Liberal Democrats also said: "We support the Bill". That is fairly clear.
	On 20 September last year, the Government announced our decision to extend the remit of the inquiry by Sir Michael Lyons into local government funding and, as a result, to postpone the 2007 council tax revaluation in England. The Bill is the legislative consequence of that decision. In brief—I will go through the detail for the benefit of noble Lords a little later—it removes the requirement in the Local Government Finance Act 1992 for a revaluation of domestic properties for council tax purposes to be implemented by April 2007. At the same time, it removes the requirement for subsequent revaluations to take place at intervals of no more than 10 years. Also, it replaces both those provisions with another that allows the Secretary of State to set the date of any revaluations, by order subject to affirmative resolution in the other place. That differs only slightly from the existing order-making power in the 1992 Act for the Secretary of State to set the date of a revaluation if it is to be in advance of the 10-year maximum interval.
	It is not the biggest Bill ever to come before your Lordships' House, but it has importance beyond its size for the future of local government in England. That importance comes from the time and space its provisions give us to allow Sir Michael to complete his inquiry, and for the Government to properly consider his recommendations and consult widely on them, before moving forward with a reformed local government finance system.
	I do not intend to speak for an overly long time, but I would like to cover three things. First, I would like to remind your Lordships of the background to the Bill and the context within which it sits; secondly, I will outline the specific detail of the Bill and its provisions for the record; and finally, I will address some of the myths and rumours that have sadly circulated since the announcement of postponement and, in so doing, make it clear exactly what the Bill does and, perhaps more importantly, does not do.
	I shall begin by setting the context and by explaining our current reform agenda and the changes that are already under way. We are clear that the future of local government is critical to the future of the country. Local government is at the heart of national life and has a pivotal role in championing the communities in which we live and in helping them to prosper. It plays an essential role in delivering services, leading and co-ordinating the activities of local public, private and voluntary organisations, and making communities more pleasant to live in.
	When speaking at Second Reading in another place, the Minister responsible for communities and local government paid tribute to councillors of all parties and to hard-working public servants for the way in which they have raised standards. Since then we have seen the results of the Audit Commission's Comprehensive Performance Assessment 2005, which shows that—even under the new and more challenging framework—more than 70 per cent of councils are improving strongly or improving well. That is an impressive performance, and shows clearly that local government is responding to the challenges of leading their communities and tailoring service delivery based on the real needs of local people, while at the same time delivering services that represent good value for money.
	Important changes are under way in local government. The new deal for communities initiative, neighbourhood wardens, and neighbourhood renewal strategies to tackle problems of deprivation and disadvantage have all been taken forward by councils.
	Local authorities are leading new children's trusts across the country that are bringing together social services, education, health and other services, and local area agreements enabling councils and central government to recognise and agree local priorities, rationalise funding streams and support greater local leadership. The Government believe that those changes represent not only a big challenge but a massive opportunity for local government, and we believe that that opportunity is most likely to be grasped if local government can focus on service delivery supported by financial stability.
	Underpinning that, the Government announced on 5 December last year the provisional local government finance settlement for 2006–07 and 2007–08. That settlement—the first provisional multi-year settlement that we shall have delivered—is a further demonstration of our commitment to local government delivering local services. By 2007–08, the increase in government grants for local services since the present Government took office will be 39 per cent in real terms. Through the new settlement arrangements the Government have provided another significant boost to local government with a financial package that is stable, predictable and adequate to meet the pressures that local authorities will face over the next two years, while keeping council tax increases down to acceptable levels. With the move to three-year settlements at the next spending review, that stability and predictability will be even greater.Investment and reform have gone together and have delivered.
	The communities that our local councils serve are growing ever more diverse with a greater range of needs and higher aspirations than ever before. That is something which we should all celebrate. But we should also realise that it means that local government's role will have to change alongside the communities it serves. That is why we launched a debate on the future role of local government—local vision. The debate has already generated a number of excellent ideas, some of which are making a difference to people's lives.
	One of the clearest messages emerging from the local vision debate, and which was reinforced by Sir Michael Lyons when he met with Ministers in the summer of last year, is that we need to be clear about what the new role for local government will be before taking decisions about individual functions or means of funding. The Government have listened and agree. We believe that we should make changes to local government funding only when we have a clear and complete understanding of what we want local government to do. That understanding must be shared not only by central and local government but by all those who help to deliver services and, most importantly, by the people they are there to serve—the general public. In short, we must settle function before settling funding.
	Your Lordships will be aware that in July 2004 the Government appointed Sir Michael Lyons to carry out an independent inquiry into local government funding, which was originally due to report by the end of 2005. He has made good progress with that remit and has started to work on his extended terms of reference, which the Government announced on 20 September. He is now being asked: to consider the current and emerging strategic role of local government; to review how the Government's agenda for devolution and decentralisation could improve services; and, in the light of that, to consider how to manage pressures on local services. In the light of this work, Sir Michael will then address critical funding issues, including those of fairness, accountability, clarity, efficiency and effective management. He will produce his final report at the end of 2006.
	As noble Lords will know, Sir Michael published a consultation paper and interim report on 15 December. This set out his approach to his extended remit and his preliminary thinking on his work to date. The Government welcome Sir Michael's publication as a useful contribution to the debate on the future role and function of local government and the way it is funded.
	This is an interim report—not a final one. Sir Michael has not come to firm conclusions, but has elaborated on his thinking to date. However, a number of important messages emerge from it. First, it reaffirms the Government's view that effective funding reforms must be based on a clear view of what we expect from local government and, therefore, to have proceeded with revaluation of council tax in 2007 would not have been sensible. Secondly, Sir Michael's research has revealed a weak public understanding of how local government is funded, confusion over how the responsibility for the delivery of local services is shared between central and local government and, in turn, a poor understanding of the cost of public services. Sir Michael suggests that this lack of understanding raises important questions about accountability and transparency.
	With the extension of Sir Michael's remit, there is now a real opportunity to promote a greater understanding of local government among the public. We encourage all concerned to contribute to the next phase of Sir Michael's inquiry so that he can offer the best possible advice in his final report at the end of the year. In this way we are confident that Sir Michael's work will provide the platform for fundamental and lasting reform.
	As your Lordships will be aware, at the same time as the Government announced the extension of Sir Michael's remit, they also announced that they had decided to legislate to postpone council tax revaluation. As the Government's announcement of 20 September explained, the case for revaluation—that it is right to maintain a fair alignment between house prices and council tax bands—is linked to wider questions about the structure of council tax and to the operation of council tax benefit. This, linked to the other changes in the local government finance system, such as those that I outlined earlier, all led to the view that to proceed with the current timetable for revaluation would not be sensible. The Government, therefore, concluded that they need the flexibility to revalue as part of a fully developed package of funding reforms, rather than as a precursor to them, and at a moment of greater financial stability for local authorities.
	Although this is a short Bill, it may be helpful to your Lordships if, as I promised earlier, I now explain its effects in some detail. First, it removes the requirement laid down by the Local Government Finance Act 1992, as amended, for the compilation of new lists on 1 April 2007. Clause 1(3) amends Section 22B of the 1992 Act by removing the duty on the listing agency—in practice, that means the Valuation Office Agency—to compile a new valuation list for billing authorities in England on 1 April 2007, and a draft of that list by 1 September this year.
	By way of a slight digression, at this point I should reaffirm to your Lordships that, to prevent nugatory expenditure, the VOA stopped work on the revaluation of domestic properties in England immediately the announcement was made. But we should be quite clear that until this Bill—particularly this provision—is enacted the VOA remains obliged to carry out the revaluation. If Royal Assent is not achieved by the Summer Recess, draft valuation lists must be published by 1 September this year.
	The second substantive provision comes from subsection (4) which removes the requirement for subsequent revaluations in England on the 10th anniversary of the previous one, unless an earlier date has been specified by order. Until the Government have received and considered Sir Michael Lyons' final report, we cannot take a view on how frequently revaluation should occur. Therefore, we think it right that we should not be statutorily committed to revaluing on a rigid, predetermined cycle.
	Finally, the Bill replaces those two provisions with a power for the Secretary of State to specify by order the date on which a new valuation list must be compiled. Such orders will be subject to the affirmative resolution procedure in another place, following the precedent set for similar provisions contained in the Local Government Finance Act 1992, which provided for the council tax in the first instance. For the sake of completeness, I should make it clear that Clause 2 simply provides for the short title of the Bill and, of course, for its extent.
	As the title of the Bill makes clear, the provisions have effect in England only. It does not in any way affect the approach being taken in the devolved administrations. In Wales, executive local government functions are, rightly, devolved. I can reassure noble Lords that the Government consulted the National Assembly for Wales on the subject matter and extent of the Bill before its introduction in another place, and the National Assembly indicated that it was content that the Bill had no effect on provisions relating to it. The Principality implemented its own council tax revaluation in April of last year.
	Noble Lords will be aware that the provisions of this Bill have no effect at all on the state of affairs, or local taxes, in Scotland or Northern Ireland.
	I conclude by turning to some of the myths and rumours that have abounded in recent months and weeks, some of which have been frankly ridiculous and absurd, and many little more than scaremongering. I will take this opportunity to set the record straight and reassure the House of the actual position.
	I cannot emphasise too strongly that this Bill does three things and three things only. It postpones the 2007 council tax revaluation exercise. Yes, despite the confused messages being fed by some to the press, the Government are postponing revaluation and have made clear that we do not believe that it will now happen in the lifetime of this Parliament. It removes the requirement for subsequent revaluations to take place at intervals of no more than 10 years. Finally, it provides power for the Secretary of State to set the date of revaluations by order, subject to affirmative resolution, as I said earlier, in another place. That is all it does. It does not legislate for a "snooper's charter". It does not give powers to the Valuation Office Agency to forcibly enter homes or to take intrusive photographs at will. It does not change the basis on which a property will be valued.
	The Valuation Office Agency has been tasked to maintain an accurate valuation list for the purposes of fair distribution of council tax liability since the Local Government Finance Act 1992 was first introduced. The VOA has powers to carry out property inspections and, if need be, these powers extend to internal inspections. This is not a snooper's charter, it is simply necessary to ensure that everyone pays their fair share of the tax. Indeed, the current powers date back to the Local Government Finance Act 1992. In fact, powers to carry out property inspections of this nature have existed since before the Second World War, so reports suggesting that the Government are introducing new powers are simply untrue.
	It is important to recognise, however, that staff and contractors of the Valuation Office Agency have no powers to forcibly inspect a property for council tax valuation purposes. The VOA does not forcibly enter people's homes—it has neither the legal power nor the desire to do so. Yes, there are provisions in the 1992 Act for fines to be imposed if a valuation officer is refused access, but these provisions have never been invoked. Moreover, internal inspections are the exception and certainly not the norm. Suggestions, which I have read, that all 22 million dwellings in the English housing stock will be individually inspected are frankly absurd.
	As for photography, we have seen ridiculous suggestions that the VOA will be taking intrusive pictures of people's bedrooms and personal belongings. Your Lordships will wish to be reassured that for a member of the VOA to take internal photographs of a property is extremely rare and would only ever happen with the express permission of the householder. Indeed, the VOA has very clear guidance for its staff about on-site photography, which specifically states that photographs can only be taken with the permission of the householder and that they must not show people, details of security systems, or valuable possessions.
	Finally, I wish to be clear that the basis on which property is valued for council tax purposes is the same now as it was when the council tax was first introduced by the party opposite. The VOA seeks to assign a market value based on the variables that operate in the market. If one property has a scenic view and another overlooks a chemical plant, it is likely that the scenic view will attract a higher relative market value than the view of a chemical plant. I ask: what is surprising about that? If one property has an attribute, say an extension or loft conversion, which leads to its market value being higher than that of its next door neighbour, it is only fair that that should be reflected in its banding. That has always been the case—nothing has changed.
	The fact that the VOA is capturing property attributes in a database using codes does not indicate some sinister new big brother database. It is simply the most effective and efficient way of capturing data in a form that can be used by its automated valuation software to come up with a fair and justifiable valuation. That process has previously been done manually by a valuation officer. The only difference now is that the valuation officer has the benefit of modern technology to support him in his task—making valuation quicker, more efficient and more consistent. I would argue that that surely is in everyone's interest.
	For the avoidance of confusion, it is worth my putting on record one or two specific details of the valuation process. For example, all properties are currently valued at 1991 equivalent values—1991 being the antecedent valuation date. This includes new properties. We should also be clear that extending or improving your property does not automatically lead to an increase in council tax. The value and council tax band of a property is only reviewed at the point of a 'relevant transaction', such as transfer of ownership through sale. Also, as council tax is based on bands, a property could rise in value as a result of improvements but remain in the same band, even if it were sold. So it is perfectly possible for a homeowner to improve his property without automatically incurring higher council tax charges.
	Finally, we have also seen stories suggesting that people who are unable to pay their council tax will be sent to prison. That is completely untrue. People who wilfully refuse to pay may be imprisoned, but that is entirely different from the position of someone who is unable to pay. Nobody has ever been gaoled for being unable to pay, nor would they be.
	Two and a half million people aged 60 or over now receive council tax benefit, which provides a rebate of up to 100 per cent on their actual bills. We know that many more who are entitled to benefit do not claim, and the Department for Work and Pensions is actively seeking to address this. It has already made the process for claiming the benefit easier and is working with others to encourage greater take up. In addition, households with someone aged 65 or over received £200 with their winter fuel payments, unless they were already entitled to a 100 per cent council tax rebate.
	These myths and rumours have only two effects—they undermine the council tax system and, worse, they frighten vulnerable members of society. I sincerely hope that this scaremongering campaign will stop and that, at least in this House, we will see a return instead to proper debate and dialogue based on fact. I commend the Bill to the House.
	Moved, That the Bill be now read a second time.—(Lord Bassam of Brighton.)

Baroness Hanham: My Lords, I thank the Minister for introducing the Bill. I welcome him to the Dispatch Box in place of the noble Baroness, Lady Andrews. We express our sympathy and hope that our condolences will be passed to her.
	The Bill is small but we still receive it with some trepidation. It is quite deceptively small but it is, despite what the Minister said, significant and important. I say at the outset that we do not object to revaluation being postponed; in fact, we welcome it; and, indeed, we would be much happier if the whole thing was abandoned. We recognise the sense in waiting for Sir Michael Lyons to have his enhanced review put forward and to seeing the results of that without his being hampered by the revaluation which is taking place.
	The Minister has explained the intentions behind the Bill and that it is essentially a cluster of amendments to other previous pieces of legislation: first, the Local Government Finance Act 1992; and, secondly, the Local Government Act 2003, which we all have fond memories of and which we debated for some time in this House. The Bill will cancel the obligation to compile a revaluation list by 1 April 2007 and separate the treatment of Wales and England.
	The Minister has gone into some depth on myths and mythology. One problem that has occurred is the distress caused in Wales by the revaluation that has taken place. The way that has been handled and how it has been received is not a great arbiter of hopefulness for the future. The revaluation process in England, if and when it ever gets under way again, will no doubt have some of the same connotations.
	We note that the Bill empowers the Secretary of State to determine the date of any revaluation, should it take place, then leaves in his hands any future revaluations, and presumably the timescale between one revaluation and another. I also note the Minister saying two or three times that any further legislation on revaluation will be taken on the Floor of the House in the other place. Do I assume that this will be by affirmative order which is applicable only to the other place? If that is the situation, then we will push hard to ensure that an order comes to this House and receives our scrutiny at the same time.
	We have considerable doubts about the fact that decisions on revaluation should be taken by the Secretary of State himself. It must certainly have the support of both Houses of Parliament and full discussion—full and proper scrutiny. I give notice of the fact that we will be testing that at a later stage. The Minister underlined what his right honourable friend in the other place, Mr Miliband, has said, that it is extremely unlikely that there will be any revaluation before the next election. May we hope that with a different, future government, we will have no revaluation following that?
	The myths and mythology that the Minister describes have arisen from a number of sources. There is no doubt that the postponement of revaluation has now raised an enormous number of hares. The reasons behind the revaluation are for Sir Michael Lyons to look into further. The whole question of local government finance, how it is applied and where it comes from has raised the question in people's minds, "What else, other than revaluation?" There has been a lot of talk about an increase in council tax banding, and the implications that would have in conjunction with revaluation. It is therefore not surprising that concerns have been raised as to what that would mean to people. If there were an increased number of bands, on a higher valuation, it would take council tax way beyond what was ever envisaged for it at its outset.
	Council tax was always meant to be partly a charge on property and partly a charge on one or two individuals who live in that property. As I understand it, it was never meant to be a serious, major taxation on households, but that is what is beginning to appear as a possibility. As Sir Michael Lyons continues his review, I hope he will take into account the fears being raised among householders about what will happen if their property is re-banded and re-valued in line with market valuations, as the Minister has said.
	There is also the question that this Bill brings up, but is not contained in it, of how valuation is done. I welcome the Minister's comments on that, and the fact that there is no intention to widen the valuation officer's scope. However, it appears that valuation officers already have rights to enter people's properties, and that is now being interpreted as something likely to happen on a much wider scale. So one must ask: where has that come from? Why is it being bandied around that that is what will happen? Presumably, press inquiries have elicited the information that that could happen. Whatever happens now, the cat is out of the bag. It is now a major problem of revaluation and what valuation officers are going to do, or going to be able to do. If we are not careful, we will end up with a reaction such as that to window taxes, where people will not make improvements to their properties because they are afraid that the valuation will be increased and that they will consequently find that they are unable to pay the council tax.
	Revaluation has gone away for the time being and we will have wait to see what happens in future when we read Sir Michael Lyons's report. I was interested that the Minister spent at least 10 minutes of his speech going through the wonderful things that have been done for local government. I do not think that this is relevant to the Bill, but nor was his introduction entirely relevant to it, but I just remind him that there is still a £2.2 billion black hole in local government finance. The Government are still very much in charge of what local government receives, how much money it has to spend and what it must spend it on. So the whole question of local government finance is very much open to consideration and inquiry concerning how much is there to be spent and who is to provide it. That is bound to raise its head as the Bill proceeds.
	I look forward to Committee. It is inevitable that we shall have to debate some of the mythology further so that we can give people the reassurance that the Minister has tried to give us this afternoon and ensure that it is made certain to people that they are not at threat from valuation officers, that there will not be a spy in the sky testing their property valuation and that the listing of valuations on IT systems will not link up with other systems so that we end up with the threat that there is over ID cards.
	So there is much that may or may not be relevant. The Bill has raised a number of hares and we will pursue them and try to shoot them in Committee.

Baroness Hollis of Heigham: My Lords, while respecting the fact that the Bill concerns council tax revaluation, I should like to raise a wider issue of local authority finance, which I am confident that the Lyons report will also scrutinise. That is the matter of the business rate. The business rate should not only be raised locally but retained locally.
	Before 1990, economic development within local government was enlightened self-interest. A city like mine of Norwich could spend local ratepayers' money on starter units for very small businesses and support services—trying to grow those businesses from two or three persons to 10, 15 or 20. It meant that an authority such as mine could make available key worker accommodation for businesses and companies seeking to expand or to move into the locality. One big decision was that we not only started but, although it was a loss leader, retained an airport because we were told by the head offices of companies located in Norwich that that was a key facility for a city that had relatively poor road communications. We did that. We invested in the local economy of our city because we knew that although that cost rates at the time, down the road, revenues would return to enhance the health of the city and its capacity to be an economic powerhouse for its region. In all the years when I was active, we discussed that business rate with the chamber of commerce. I am sure that the same was true for my noble friend, who is also a former leader of a local authority. Those discussions with the chambers of commerce were entirely amicable and, if it was appropriate, we amended our agenda accordingly. As a result, we could persuade local citizens that what we needed to spend we raised locally and that we were accountable locally. Because most of our revenues were raised locally, there was a transparency between what we did, what we spent, what we raised and what we were held to account for in local government elections.
	Since 1990, one of the most perverse pieces of legislation was the nationalisation—it was about the only thing that was nationalised—of the business rate. I want to address two arguments—the other side of the advantages that we had before 1990. It has resulted in a very serious democratic deficit. Now, something like 85 per cent of local government revenues come from central government. As my noble friend rightly said when discussing the Lyons report, as a result local people do not know what their money buys or the degree to which their local authority is effective, efficient or offers value for money because it is cloaked, concealed and cushioned by the moneys coming from central government. There is an obscurity where there should be transparency and there is a lack of accountability. There is an erratic volatile quality because, of course, if something like only one-seventh of moneys is raised locally, for every £1 of expenditure that you want to raise, you have to raise £7 locally. There is a very high gearing effect which increases the volatility against which so many people currently complain.
	Therefore, the first problem with nationalising the business rate is the democratic deficit, but the second problem is the economic absurdity of it. There is now no connection between economic development and financial return. Because over many decades my city has invested in its local economy, next year, it will pay into the national economy something like £57 million in business rates and will get back about £37 million in grants from central government—both at district and at county levels on a pro rata population basis. In other words, as a result of the city's investment as an economy in the past, it exports something like £20 million to other authorities, whereas the adjacent, sometimes rather sleepy, indolent and low-rate and low-activity rural districts are doing very nicely, thank you. Next year, one will export £15 million in business rate, but will get double that figure back—£30 million—from central government for doing nothing.
	The consequence of that detachment and dislocation between economic development and the business rate means that whether a local authority invests in its economy and does anything, or does not invest in its economy and does nothing, matters not at all. So why bother? Why should any local authority do anything to help its local economy and business when it will not get a penny piece back in revenues? It is more perverse than that: local citizens will be asked, through their council tax with its very high gearing ratio, to invest in local business, the rates of which are exported to other local authorities. Not only does your own citizenry not benefit from economic development, you end up charging your local citizens for the privilege of exporting more moneys to other local authorities which are doing nothing similar of their own.
	Can my noble Lords imagine a more perverse way to calculate a quarter or a third or so of local authority expenditure and financing than a business rate which completely breaks the connection between what a local authority does and what it receives back to support its local community. Are you surprised that local government becomes increasingly indifferent to the concerns of business when whatever it does, positively or negatively, makes no difference for the returns that it gets? It is bizarre, it is perverse. It is surely alien to the issues we want to see resolved in the Lyons report, and also more broadly to encouraging local government to take a comprehensive view across the whole of its city—not just its citizens and residents, but its workers and employers. Bearing in mind the argument of the democratic deficit and of encouraging local government to take a healthy responsibility for economic activity within its local economy, I hope that my noble friend will restore back to local government its business rate.

Baroness Scott of Needham Market: My Lords, it is a great pleasure to follow on from the noble Baroness. On these Benches, we concur with just about everything she said about local autonomy and the importance of financial autonomy to build strong and healthy local government. It is remarkable that this Bill is the only legislation which has come forward from the OPDM in the 15 months since I became a Front-Bench spokesman. It is a modest Bill designed to stop something happening. After a three-year period of review, re-evaluation, more review and assessment, we are still waiting for something to happen. If we had abided by the strict letter of the parliamentary rules of engagement and simply discussed the terms of the Bill, our debate would have been much shorter. The Minister broadened out the debate and discussed wider local government issues and so has rather given us licence to do the same.
	Even in its brevity, the Bill displays one of the saddest aspects of modern local government in that it gives the Secretary of State power to revalue properties when he feels like it. So it is another example of how local government operates at the whim of the current interests of central government, rather than of good local government. The original intention to have revaluation after the general election was always naked self-interest on the part of central government, but it was at least transparent—if you do not mind "transparent" and "naked" in the same sentence.
	The problem with the current system is that it was originally intended to be based on notional values. We would have broad bands which would act as comparators in terms of property values. But as council taxes increased way beyond the levels of inflation and way beyond the levels originally envisaged, the pressure to do something has become greater. We were told in the run-up to this that revaluation was not about increasing the total tax take, but was simply about the way in which this burden would be distributed. It always struck us on these Benches that it was a classic response of this Government to avoid radical reform and instead tweak the existing system. Had revaluation taken place, it would simply have made a bad system more complex and created new inequities to add to the old ones.
	One of the key problems is that the current system is based on property values from 1991. That is for anyone who has not sold their house. If you have sold your house, then your house will have been revalued and you may well be banded completely differently from the identical house next door. As council tax increases, that sort of inequity makes people very cross. It will get worse. If we have no revaluation at all, if it is postponed for 15 or 20 years, the disparities between people who have been revalued and those who have not will simply get worse. The Bill is a fig-leaf to cover the Government's embarrassment over local government finance. It is now so complicated that very few people really understand it. I work for a think-tank that, when trying to obtain figures from departments, simply could not get the Department for Transport figures and the OPDM figures on local government transport spending to meet up and agree, because the system is so complicated. It is no wonder that Michael Lyons has found that the public do not understand local government finance when so many professionals do not understand it either.
	The current system is outrageously unfair and, worse than that, it is now becoming profoundly undemocratic. Local government now raises less than a quarter of what it spends and even that small proportion is subject to government control through the capping regime. Each year in this body, the mother of Parliaments, we hold a debate over whether some small rural district council can spend four pence a year extra per resident. I have to say that it is no wonder local people wonder what central government are doing.
	The situation is deeply unfair to many of the least well-off in our society. Many people now pay something like 10 per cent of their income in council tax. It was never envisaged to be at that kind of level. Any decent review of local taxation should at least examine whether that sort of situation is justified. Hundreds of people living in private rented accommodation pay a tax on an asset which belongs to someone else, so it cannot even be argued that this is a decent property tax. On the other hand, many people have purchased properties at much reduced rates under right-to-buy schemes and now find themselves with an asset that is notionally valued at a level at which they cannot afford to pay the council tax. To deal with many of the worst inequities we have an increasingly complicated system of means-tested benefits which add to the administrative burden of collecting the tax in the first place. And, as we know, there is significant under-claiming and take-up of these benefits, as is always the case with means-tested benefits. People are either nervous about the system or, especially for older people, there are cultural difficulties about claiming such benefits. They feel that it is an admission of failure if they have to do so.
	The position is so complicated that it has allowed scare stories of the sort described by the Minister to take hold. If the situation were more transparent, these stories simply would not hold water. So I do not have an awful lot of sympathy with the department for having got into a situation where newspapers can run stories and people believe them.
	After a full consultation and a White Paper published in 1999–2000, it was agreed that revaluation would take place on a 10-year basis. Members of the Official Opposition agreed that any property tax would need to be subject to some sort of revaluation in the way that rates used to be. The Valuation Office Agency had geared itself up for a national revaluation and spent an estimated £45 million preparing for the exercise. It has now had to make total staff reductions of around 1,250, but at some point all that capacity will have to be restored if the Government decide that revaluation is necessary after all.
	Members on these Benches will support the Bill because we do not want to see revaluation and we do not support council tax at all. We would like to see the Lyons review carried out with nothing ruled in or out, and then a proper national debate on how local services should be paid for. After that, we shall see.

Lord Hanningfield: My Lords, this has been an interesting short debate and I thank the Minister for his congratulatory remarks to local government. I declare an interest as the leader of Essex County Council, which is one of the councils that rose from three-star to four-star status in a harder regime with a CPA assessment made just before Christmas. We are very pleased about it.
	As has already been acknowledged, Members on these Benches support the general thrust of the Bill, but a number of issues give us cause for concern. As my noble friend Lady Hanham has said, we support the decision to postpone revaluation and we shall support that part of the legislation. But we cannot support the proposal to give the Secretary of State an unfettered power to introduce revaluation, in theory whenever he wishes and particularly without it being given some consideration by this House. We are also concerned about the impact of revaluation on the already hard-pressed council tax payer. Along with one or two other speakers, I shall take a little licence when talking about council tax. Perhaps the Minister can give us a reassurance today that any potential revaluation would not have serious implications for ordinary people up and down the country.
	Council tax is an important issue, because many people feel that the basis of its funding and distribution between various regions of the UK is not fair. As the noble Baroness, Lady Scott, has said, some people now pay perhaps 10 per cent of their income in council tax. Those people believe that the working of the system itself has become fundamentally unfair. Indeed, when one considers that since 1997 council tax has increased by well over 76 per cent, people's worries can be understood. Many individuals such as pensioners, who are asset-rich but income-poor, have been hit particularly hard.
	Furthermore, there is the gearing effect that the noble Baroness, Lady Hollis, mentioned; I may return to some of her issues shortly. That means it is difficult for local authorities to keep the rise in council tax down to the rate of inflation. It is hard indeed to do any of the things that the noble Baroness talked about in her valuable contribution. Indeed, figures from the LGA show that council tax, since its 1991 inception, has risen from covering 21 per cent of local government expenditure to 25 per cent. It is particularly relevant to what the noble Baroness, Lady Hollis, said in that business rates have fallen from 28 per cent to 21 per cent. So, the contribution from the ordinary council tax payer to local expenditure has increased considerably while the business contribution has fallen back. I support most of what the noble Baroness said today.
	It is perhaps worthwhile to indicate why we are considering the legislation today. As the Minister said, council tax revaluation is being postponed; but the Government have set up the Lyons inquiry, which I support. When announcing the council tax revaluation postponement, they asked Sir Michael Lyons to look into the structures—which, again, one can support. Sir Michael gave an interim report, to which the Minister referred, and I want to comment on some things said in it.
	He stated that a significant number of households would be paying significantly more in council tax, due to the decision by the Government to abandon revaluation. However, in all the models that he looked at, Sir Michael assumed that the revaluation would be revenue neutral, which—as the noble Baroness, Lady Scott, said—is the Government's assertion. Of course, in the 2005 Welsh council tax revaluation and the 2005 English business tax revaluation, the Government's claims that revaluation would be revenue neutral turned out to be false with, for example, average bills in Wales increasing by some 8 per cent. On that level, some of Sir Michael's assertions and models would be inadequate. Revaluation could also be a bad thing because the Government would not do what they promise. If that happens, it would not be revenue neutral but would be increasing the tax burden by stealth.
	In the interim report, Sir Michael analysed a straightforward national revaluation using existing bands. In that model, 19 per cent moved up bands and 17 per cent down bands. In London, the worst hit, 11 per cent would move down while 35 per cent would move up. Either way, even if it is revenue neutral, Lyons concedes that some regions like London would be badly hit and that under the standard revaluation model there would be more losers than winners.
	Sir Michael then modelled his revaluation with extra bands. For example, one model had 12 bands including three new top bands, with the top band paying 400 per cent of the Band D rate, compared to 200 per cent at present. In that model, Sir Michael says that 4.6 million will move up and 6.5 million will move down; that is the source of some press reports. However, one should take in mind that a lot of those houses moving up would be those that I referred to before as being asset-rich and, perhaps, income-poor. Increasing taxes for these people would be extremely unfair. Families who had worked hard to improve their homes would face soaring bills, up to the equivalent of perhaps £5,000 a year. That would be getting towards the old rates system which became so unpopular, because people would be paying even larger amounts of their income in that sort of tax model. It all points to the fact that the whole thing needs totally rethinking and redoing.
	Sir Michael then says that higher bands do not improve equity, as I have just said, and that the best way to improve fairness is to sort out the failing council tax benefit system, which the Minister referred to, and which I again support. Perhaps there will be some measures to improve that, even before we get to the Lyons review. In short, revaluation will not itself produce more winners and losers—even Sir Michael admits that—and so far the Government's revaluations have been tax-raising, not tax-cutting.
	I shall move on to one or two other issues. In 2004, the Government estimated that revaluation would cost £108 million. In 2005, the cost was up to £178 million—an increase of around 60 per cent. We are looking at something like the Scottish Parliament problem, with continued escalation of what it might cost. As the noble Baroness, Lady Scott, has referred to, the Minister, the noble Baroness, Lady Andrews, confirmed in November that the Valuation Office Agency had incurred around £60 million in costs and contractual liabilities on the revaluation up to that point. The noble Baroness's answer mentioned that some £45 million of this figure would be of potential use in the future. However, given that this Bill cancels the requirement for any form of revaluation indefinitely, we have absolutely no idea when this outlay will be utilised, if ever. Surely the work done in the last year or so will be out of date by the time Sir Michael's inquiry publishes the final report.
	Furthermore, I was informed in a reply to another Written Question that the immediate impact of this cancellation was that approximately 400 staff working on casual and fixed-term contracts at the Valuation Office Agency have been given notice to leave, and that an early departure scheme for permanent employees is taking place. What estimate has been made of the costs caused by these redundancies, particularly in terms of compensation and other payments, and are they included in the figure already stated of the cost of the aborted revaluation exercise?
	As I set out in my introduction, the Bill contains the power for the Secretary of State to authorise a revaluation whenever he or she wants. Perhaps the Minister could clarify the position: how soon after the conclusion and publication of Sir Michael's final report do the Government envisage that a revaluation will occur? A lot of the problems and inequities we have discussed—including the lack of business contribution towards development in localities, which the noble Baroness, Lady Hollis, talked about, and escalating council tax bills, which I mentioned—will clearly be with us for several years. As the Minister said, there will be no revaluation in this Parliament. Therefore, these anomalies and problems look like being with us for at least two or three years. They are a problem.
	We did not need a Sir Michael Lyons review to say that the public do not understand the system. We could all have told him that years ago. It is unfortunate that it looks like being at least three or four years before there is any real change, and the public understand and local government gets better treatment on raising money locally. It is sad that at this stage all we have had is a postponement of revaluation, which we can support. I said when we debated the Local Government Bill that all governments that had carried out revaluation had lost the subsequent election. That is one of the reasons it was not done now. I still think the Government will lose the next election anyway, so it may be that another party will have to pick up this mess.
	I would like the Minister to say a bit more, rather than the platitudes he gave about local government to start with. We will have three or so years of uncertainty, which will not help local government or the public to understand what local services are being paid for and how they are provided. It is going to be an interesting debate. This is only a small Bill, as has been said. We will question in particular the part of the clause that gives those powers to the Secretary of State, and I am sure that will be an interesting time in Committee. I shall be supporting my noble friend Lady Hanham.

Lord Bassam of Brighton: My Lords, I ought first to express my gratitude to all noble Lords who have spoken in this debate. It presages an interesting Committee stage, not least because of the quality of contributions. I think we have had four leaders or ex-leaders, and one leading member taking part, and perhaps more will join us when we look at the detail of the Bill.
	I am also grateful for the support in broad terms that both major opposition parties have given to the Government's proposition. That tells me that we will have an interesting and challenging time in Committee discussing what we all accept is a sensible but short measure. I was interested to hear my noble friend Lady Hollis speak from her particular perspective. I shall discuss her contribution when responding to various points. We have had a useful start and I look forward to the detailed examination that will occur—in which no doubt I shall play a small part—when my noble friend Lady Andrews returns to take control of the Bill.
	We believe that the provisions are essential if we are to formalise the postponement of revaluation announced last September. As it stands, revaluation must happen on 1 April 2007. It is only through the provisions of this Bill that the Local Government Finance Act 1992 will and can be amended and postponement formalised and achieved.
	As I said earlier, the Bill provides the time and space for Sir Michael Lyons to complete work on his extended remit to publish his final report at the end of the year. Beyond that, it gives us the flexibility—that is very important—to revalue as part of a fully developed package of funding reforms. The Government have been asked on many occasions to predict when they believe revaluation will happen. That has been repeated this afternoon. I am sure noble Lords will recognise that, just as we now recognise that 2007 is not the right time, we cannot sensibly gaze into the future and say now when the time will be right and appropriate. We have a lot more work to do and we will want to take very careful account of, and see a wide-ranging debate on, the fruit of Sir Michael Lyons' later report. When and how to revalue will depend very much on the wider picture that emerges in the light of Sir Michael's recommendations. As the Minister for Communities and Local Government said at the time of the announcement on 20 September last year: first, function, then, finance, then, revaluation. That is a very sensible formulation. That provided us with the opportunity to say that we did not think that revaluation would occur in the lifetime of this Parliament. That position is backed up by the Bill which maintains the principle of revaluation but allows sufficient flexibility for it to happen at the most appropriate time.
	Indeed, by removing the requirement for there to be no more than 10 years between revaluations, the Government are seeking to provide that maximum flexibility not only in the timing of the first, but of each subsequent revaluation. If we accept that it is right not to set a date now for the first revaluation, it follows that it would not be sensible to seek to predict when would be the right time for the second or subsequent revaluations. To remove the date of the first revaluation without in turn removing the predetermined time-frame for future revaluations would greatly reduce the Government's flexibility in an entirely unnecessary form.
	A number of questions were asked that were either directly or indirectly related to the Bill. The noble Baroness, Lady Hanham, made a point about secondary legislation that I anticipated she would. I confirm that the situation is as she describes. This merely follows the precedent of other comparable secondary legislation in the original 1992 Act, such as bringing forward the date of future revaluations from the 10-year maximum or changing the number of valuation bands. The noble Baroness speculated what the effect of the additional council tax bands would be. Again, that is a matter on which we shall have to await the findings of the Lyons' report. But it is essential to understand that the existing bands could be revalued at the same time as property so, other things being equal, if a property has not risen in value by more than average, it should not end up paying more tax.
	The noble Baroness made the assertion that revaluation in Wales can be taken as an indicator of the effect of revaluation in England. Wales cannot be seen as any indication of the way revaluation will be carried out in England, or of its effect. The Government are committed to revaluation in England being revenue-neutral. I made that point at the outset; and that is the situation. That is our intention and our desire.
	The noble Baroness also referred to the powers of valuation officers and the assertions in the press that those powers are increasing. Many of those assertions seem to have been stimulated by the very active role taken by Ms Spelman in another place. Valuation officers have the same powers now as they were given by the party of the noble Baroness, Lady Hanham, back in the Local Government Finance Act 1992. Nothing has changed, and there are no plans to extend their powers. It is a matter of regret that much speculation and falsehood about the way in which the tax works has been dangerously stimulated by some commentators and some politicians. Ultimately, that can only damage the tax and its credibility, and that is not in anyone's interest. I would have thought particularly for the party opposite, which is committed to council tax, that to undermine its credibility does nothing to help the tax in the longer term. I would not have thought that was a desirable outcome, and I would caution against a campaign that operates in that way.
	The noble Baroness also made a passing point about the alleged £2.2 billion hole in local government finance. This Government have provided substantial additional funding for local government in the provisional settlement announced in December, and we have made it clear that there will be stability in local government by announcing a two-year package, which by and large has been welcomed. We have had a 39 per cent real terms increase in support for local government since our Government came into office in 1997; something which I do not think could have been envisaged had the party opposite continued in office from the 1997 general election.
	The noble Baroness, Lady Hanham, also made a point about the Valuation Office Agency embarking on a widening scale of taxes, window taxes and so on. She referred to press inquiries about "spies in the skies" and the linkages of different IT systems. There have been press inquiries and parliamentary Questions, which have promoted information. It is clear and unequivocal that less than 1 per cent of properties are internally inspected annually by the Valuation Office Agency, and it is a sad fact that has not been reported. Much of the press speculation seems to rest on the assumption that it will be a universal approach. It is not a universal approach; it is not universally necessary and nor is that the way in which the Valuation Office Agency operates. I want to kill off this issue about there being a "spy in the sky". The Valuation Office Agency has no contracts with any organisation undertaking aerial photography and no intention of using that in the way in which has been erroneously reported in many sectors of the press.
	The IT system built for the Valuation Office Agency only contains information that the VOA already holds. It has simply digitised that information and employed new technology to improve its efficiency and effectiveness. It should be congratulated on that, and I have no doubt that it will have longer-term benefits, particularly when at some later date a revaluation exercise has to be undertaken.
	When the noble Baroness, Lady Hanham, finished, my noble friend Lady Hollis made a very important contribution to the debate about the importance of local accountability. I recognised a lot of the arguments that have been deployed, familiar as I am with local government and coming from a strong local government background. It would be surprising if I did not express some sympathy with those arguments, particularly on the importance of local accountability in the funding of local government.
	I agree in part with what the noble Baroness said. Sir Michael Lyons picked up the issue in his interim report. Of course, the arguments are complex and there is surely a strong case, too, for a system of equalisation. Indeed, I sense that the noble Baroness supports the principle of equalisation, which is certainly easier to implement in the nationalised system of business rate collection. There is no doubt in my mind about the value of equalisation, although I recall raising questions about the system at the time of its introduction. Before the nationalisation of the business rate, many local authorities had within their boundaries the capacity to raise substantially greater revenue than did local authorities whose areas had a poorer business base, whether that related to offices, factories, workshops or whatever. I remember some of those inequities and I believe that the nationalisation of the business rate ironed those anomalies out.

Baroness Hollis of Heigham: My Lords, does my noble friend agree that the fact that local authorities had offices and factories in their areas was not an anomaly? Those authorities worked for and built that base. That is not an anomaly; it is a reward for activity and energy.

Lord Bassam of Brighton: My Lords, I certainly agree that local authorities, including those of the noble Baroness, me and many others, encouraged and stimulated business growth and development. Indeed, we saw that as a badge of pride and as an important element of the local economic development strategy. Perhaps I should have said more precisely that that approach could lead to disparities, if you like, in the wealth generated from the local business rate; the lack of an even base for taxation could lead to severe constraints on the development of local services.
	The Government have taken measures to increase and stimulate co-operation and liaison between local authorities and local businesses. We have attempted to provide a background to stimulating local economic activity; we have been at pains to ensure that local authorities are not hampered in that regard. Additionally, we have put in place schemes such as the local authority business growth incentives scheme and the business improvement districts scheme, which have now begun to bring some benefit. We recognise to a degree the issues that the noble Baroness raised. Beyond that, we should perhaps await the outcome of Sir Michael Lyons's final report, as I have no doubt that he will focus time and energy on those important issues.
	The noble Baroness, Lady Scott, made a valuable contribution. I am grateful for her support for the principles of the Bill, even if that support comes from a different perspective, with which I would probably take issue. She said that, when properties are sold, they are revalued to current values. That is not the case. When a property is sold on and there have been improvements, it may be revalued, but it will be revalued to 1991 values, not to current values.

Baroness Scott of Needham Market: My Lords, my point was that if the house next door, to which the same improvements have been made, is not sold, the cost of the improvements will not be reflected in its value. Therefore, there can still be a disparity between identical neighbouring houses, depending on whether one has been sold. My point was that that is arbitrary and not clear to the public.

Lord Bassam of Brighton: My Lords, that may well be the case, but the system is as I described: it is based on bands and those bands will not necessarily change even after a review. That is an important point to remember. Also, all values are related to the 1991 values.
	The noble Baroness and the noble Lord, Lord Hanningfield, made some observations about the impact on Valuation Office Agency staff of the Government's decision to postpone revaluation. Future revaluations are likely to require fewer staff in any event, as the benefits of the technology that I talked about earlier will ensure that there is less manual preparatory work and a speedier response to the call for revaluation. Of the expenditure on preparation for revaluation as it would have been, £45 million will be reusable.
	The Valuation Office Agency had about 1,400 people employed on revaluation work when the postponement was announced. Immediately following the announcement, the agency took steps to reduce continuing expenditure and the opportunity to reshape the agency to fit the new situation. Some 420 staff employed as casuals or on fixed-term contracts would have left the agency by the end of November last year, and a voluntary early departure scheme has been announced, with 600 staff expected to depart between March and June this year. Coupled with natural wastage, we expect the total reduction to amount to some 1,250 staff. There is a careful management process in place designed to ensure minimal damage to the work of the organisation, but to take account of the fact that work flows have changed and will not be as originally predicted.
	The noble Baroness, Lady Scott, and the noble Lord, Lord Hanningfield, made perfectly respectable points about pensioners and low-income taxpayers not taking up council tax benefit. The Department for Work and Pensions is taking very active steps to improve take-up, as I explained in my opening contribution, and as the noble Baroness, Lady Hollis, will be well aware from her important work in her time in the department. That includes a positive approach—ringing pensioners whom it believes may be entitled but are not claiming council tax benefit, taking details over the phone and then sending completed claim forms, which the pensioner need only sign to get their benefit. In the longer term, the department aims to make getting the benefit as automatic—in other words, passported—as possible.
	The noble Lord, Lord Hanningfield, made some important points based on his continued and in-depth knowledge and experience of local government, for which I pay tribute; he does a first-rate job in representing Essex County Council, and I am grateful to him for his insights. I take issue with his assertion about Wales being a precedent; as I said, it is our intention that any revaluation in the future be revenue neutral. In basic terms, the Bill's provisions are very close to the existing legislation. Without the Bill, we would be obliged to continue with the process as it is. We do not want that to be the case. It is important that we move on and provide ourselves with the space to take account of Sir Michael Lyons's final report and review. I simply ask the noble Lord to be patient; it is a great virtue and one of which we in local government have long experience. This is an important moment for us to take time and reflect on where we go with function and funding. Those two elements are very important to the longer-term future and the debates that take place over local government and its continued and important role as part of the machinery of government in this country.
	I am grateful to those who have contributed; it portends well for an informed and orderly debate on a Bill that is essential for us to achieve a purpose that has had universal support, even if it is for different reasons, from the major parties in your Lordships' House.
	On Question, Bill read a second time.

House adjourned at twenty-nine minutes past five o'clock.